Commentary: It’s a new world for Nortel’s customers

Some technology analysts have been sanguine about Nortel Network's demise, and Telus Corp. and BCE Inc. say it is business as usual on the carrier side. But Nortel's enterprise customers face significant uncertainty - the business will likely be broken up, sold, and re-branded. Telecom consultancy Ovum (part of the Datamonitor Group) released a comment on Nortel's bankruptcy saying competitors will exploit the situation because they are in "a strong position to remind customers that Nortel can no longer give assurances of continued development of any specific products." The message to customers seems to be that legacy technologies will be supported, but that the migration path for newer technologies, whether on the carrier or enterprise front, is in such serious doubt that newer customers might have cause for concern. "The legacy Nortel business isn't a growth business at all," says Iain Grant of the Seaboard Group, "but that part of will still need to be serviced - as long as there are DMSs that need spare parts." Even in this example, however, it is questionable whether Nortel as a separate company is necessary. Flextronics International Ltd., which acquired many of Nortel's manufacturing operations in 2004 and 2005 and is now one of Nortel's creditors, could feasibly supply the channel via third party services firms to fulfil maintenance and support requirements. "The Nortel customers we've spoken to are busy looking for second and third suppliers," says Grant. "When they go to capital directors significant questions are asked: What about the warranty? Who will be around to service this stuff?" However, Lawrence Surtees, International Data Corp.'s (IDC's) lead analyst covering the Canadian telecom services sector, is guardedly optimistic about Nortel's future. "They will survive in some form," says Surtees. "There are a lot of wild cards, and businesses will be hived off, but there will be something called Nortel at the end of the day." In fact, Surtees sees the filing as a strategic decision to maintain the long-term viability of the company. "Why did they file Chapter 11 now? They are not financially insolvent today. It is to put the creditors at bay, buy time, and avail themselves of a court-umpired process for restructuring." Though present customers will receive service -and as long as the money is there in support and maintenance, a business will show up to provide it - the present economic climate makes it hard to see how Nortel will emerge as anything more than a shadow of its former self. In effect, customers need to prepare themselves for an extended hiatus, and then a shift in gears. And when that shift happens it could be a shock. As an example, the Ovum comment suggests that for those companies going head to head against Cisco Systems, such as Juniper Networks, Tellabs Inc., and Ciena Corp., there are attractive Nortel assets. However, where it comes to product overlap, buying a competitor just to get them out of the market is not an unheard of strategy. Meanwhile, Nortel's very public desire to sell its Metro Ethernet Networks (MEN) division has fallen flat. MEN's 40G/100G business, with 42 customer wins, should still be attractive to a potential buyer, and will almost certainly have a future. The question is, with whom, and at what price? "It's highly probable...that what they wanted to sell Metro Ethernet for and what a prospective buyer wanted to pay, whether a Cisco or an Avaya, got wider and wider," says Surtees. For customers, then, the speed of the bankruptcy proceedings will have a direct impact on the stability and long term viability of Nortel's legacy technology, especially on the enterprise side. "The enterprise side is where you might see some RFP responses trailing," says independent telecom analyst Jon Arnold. "This is why Mike Zafirovski and the company have the desire to get through this as quickly as they can. The enterprise customers want to be certain of who they are doing business with - they already know the enterprise part was being shopped around." Arnold agrees with Surtees that this is not the final chapter for Nortel, "People keep thinking ‘My gosh, it's over, the company will close its doors," he says. "But Nortel does have money in the bank, they do have cool technologies coming out, and they do have substantial business." They do. But they have also come to the end of the road, and customers need to prepare for the loss of control that bankruptcy protection entails, and for the likelihood that, in fact, this is the final chapter, and that Iain Grant is right when he says - "I would not be surprised if in three years there is no corporation with the name Nortel on it."

Commentary: It’s a new world for Nortel’s customers

News | January 20, 2009

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