Avaya to Buy Nortel’s Enterprise Business: A Sad Day for Canada

by Jeff Wiener on July 20, 2009

It looks like Nortel’s fate is quickly coming to an end. The speculated rumour which has been going around for weeks is now confirmed with Avaya’s $475-million bid for Nortel’s enterprise business.

The $475-million offer is for Nortel’s European, Middle East, and African enterprise units. Nortel has also reached a “stalking horse” agreement with Avaya for the North American, Latin American, and Asian enterprise business units. With Nortel’s CDMA business going to Nokia Siemens, it looks like the end is coming near for Nortel.

As a Canadian, I am trying to view these announcements favorably but having a hard time with it. Nortel has been in Canada for decades, and been a pioneer in the telecom market since inception (or close to it anyway).

Nortel is telecom, and Nortel is Canada’s R&D leader. With assets now going to Nokia Siemens and Avaya, this will clearly diminish Canada’s dominance in the telecom and R&D space. Yes, there are other companies, and many small entrepreneurial shops that will get spun from the very talented engineers, but this certainly marks the end of a very long Canadian history.

As an Avaya reseller, I believe this ultimately will help Digitcom’s business.

First, one of our major competitors (we did at one time sell Nortel equipment, and still have many Nortel customers) will be gone from the market. There has been, and will continue to be, a large base of Nortel business that will over the next many years get transitioned to alternate products.

The challenge for Avaya at this point is to ensure the bulk of the current Nortel business transitions to Avaya equipment.  As much as Avaya has been active over the past six months, their competitors will continue to prey on Nortel’s base.

The big difference is that Avaya is no longer the one preying, they are the bait. And when you are #1 in the market (which Avaya will be), there will be a lots of folks breathing down their backs.

While Avaya has given no guidance about its plans for Nortel’s enterprise business, Avaya is unlikely to continue with two competing products lines. I expect they will ultimately transition competing lines such as the Norstar, BCM and the CS1000 products to Avaya equipment with some large trade-in discounts.

Other then the Norstar and old Option 11 hardware (which are/were workhorses), the BCM and to a lesser extent, the CS1000, have been plagued with issues for many years. I’m sure  the technology itself isn’t worth much, although the product and dealer base certainly are.

Although the deal isn’t done yet – (Matlin Patterson is putting together a competing bid for the entire Nortel business unit), this is a sad day for telecom and a sad day for Canada.

What do you think about the deal? Do Nortel’s asset sales hurt the Canadian high-tech market?

More: Nortel has billions of dollars of tax-losses and R&D credits that a Canadian company could take advantage of. Any takers?



{ 3 trackbacks }

Does Nortel have another stalking horse in Nokia Siemens? — TheTelecomBlog.com
November 9, 2009 at 9:42 pm
What’s Avaya going to do with the Nortel product roadmap ? — TheTelecomBlog.com
December 11, 2009 at 5:38 pm
Avaya Nortel, Nortel Avaya. Which one is it ? And what happens to your old Nortel equipment ? — TheTelecomBlog.com
December 31, 2009 at 6:50 am

{ 5 comments… read them below or add one }

Keith July 20, 2009 at 1:35 pm

Not sure Avaya will entirely kill of the data line, they could use switches to support their voip products, but the voice side of things would almost certainly be dead. Hopefully Matlin Patterson will out bid them and keep things intact.

Mike a July 20, 2009 at 5:59 pm

Nortel

Oh Nortel, how you once were so great.
I just kept on believing but
you kept having to RESTATE.

For the analyst, Nortel was their top pick.
The stock just kept rising
and then it would split.

Roth bought companies, Nortel would never use.
Buying Nortel stock
meant you just couldn’t lose.

But did we know, that the future was cursed?
Nortel financed all their orders
then the tech bubble burst.

Those dot com’s never earned a dime,
Nortel stock price plunged
and investors all whined.

It will be okay, all the analysts said,
John Roth was CEO of the year
or haven’t you read?

Roth resigns with millions says he’s not well
So here comes Frank Dunn,
he has the same smell.

Dunn was the CFO, while Roth was the boss,
Roth & Dunn are mostly to blame
for the billions Nortel loss.

Slowly Nortel stock began an upward steady climb,
from sixty odd cents to
twelve bucks shy by a dime.

But haunts from the past they would await,
Dunn and his friends
are caught in “bonusgate”

They inflated the revenue from previous years,
Nortel was a laughing stock
amongst all of its peers.

Dunn and his friends, are fired with cause,
Now they all hide behind
Our lenient Canadian laws.

Millions of investors we’re all fed up.
but wait, in walks the Admiral
and another RESTATE.

He did not do much we all can agree,
He also left with millions
The Admiral just headed out to sea

But alas, the rumors could they be true?
Here comes our best CEO
What the rest couldn’t he will do.

He has a foreign name; it’s looking real sunny,
But Nortel must wait cause
Motorola wants lots of money.

So again Nortel pays millions, BOD says he will be great.
Meet Mike Zafirovski and by
the way another RESTATE.

We will do what is right, we will be squeaky clean,
I’ll hire the right people,
we will get real lean.

Mike it’s been over three years look what you.ve done
Nortel’s market cap is now
Is virtually next to none.

The stock is now worth ZERO cents
the pensioners wonder where
all of their money went.

To settle the lawsuits, you just printed more shares,
Mike you killed all the bulls,
In stormed all the bears.

You promised Nortel would again be great
Three to five years is what you
asked investors like me to wait

Throw in the reverse split, the layoffs and cuts
Nortel kept bleeding billions
But giving yourself that big raise took real guts

Analyst once screamed Nortel “it’s a good buy”
last one turn out the lights
After a hundred years of history sadly Nortel its good bye.

Roger Strong July 21, 2009 at 3:19 pm

I had to laugh at the comment that the BCM/CS1000 dealer base is worth something. When we upgraded our phone system last year, the folks at MTS in Manitoba couldn’t even arrange a working demo.

They wanted us to sign a contract before they would even tell us what we’d get for it. Their quotes were vague about what features we’d be getting – and they’d never get back to us to confirm.

One of the key features we wanted was a simple programming API – something we could tap into to pop customer information up on the screen when they phoned. They told us repeatedly that they had it, and that they’d get back to us with the details. When we refused to sign the contract without that information, they finally admitted that the API required a separate – much more expensive – contract, and that we wouldn’t be allowed to see if it was suitable until after we signed and paid.

In the end we replaced our old Nortel system with a new Mitel system. The details on the pop-up API were faxed to me before we signed, and it was all I needed. Other programming APIs were publicly available. The system has worked very well.

Alex July 22, 2009 at 10:23 am

Am I sad that Nortel is going away? As a canadian, yes I am. It is always sad to see a Canadian institution fade away.
As Alex, I am actually not sad at all. Nortel demonstrates exactly what is wrong on Wall Street, or in our case, Bay Street.
Big company, doing great work, goes public and refocuses in matching the street expectations, notwithstanding their product and services development.

They become, after all, financial companies, juggling their statements for no apparent reason other than meeting analysts expectations and grow. Because as we now, its all about growth. So, whatever happened to nice profits. That doesn’t matter anymore. It is all growth. Doesn’t matter from where, just grow. Specifically Nortel, for example, bought Synoptics a few years back. A company that had the upper hand over Cisco. Where did they go… nowhere. Focus is lost.

Their phone system business, I am not an expert, but you are. When we were looking for a new system, Nortel had nothing that addressed my business. We had to compare to newcomers like Switchbox and Shortel. And even now, services like Google, ring central and skype will start taking the upper hand as Avaya and Cisco don’t seem to address the real VOIP. I know I am forever the gadget guy, but I do want something more than what we get and other smaller companies seem to be addressing it. I want to be able to talk on skype via my cell, or my desk phone. If I’m in the office and have to leave, I want to transfer the call to my cell. And have 1 number for everything, with 1 voicemail box that I can check anywhere in the world. From a browser. And also use whatever computer (Mac would be a nice start, but linux too) to dial from the address book email or CRM system. to call via skype or cell or landline. Hard it is, otherwise it would be widely available. But just wait a bit and someone will offer it soon, just look at Asterisk.

If the Avaya’s of the world and others don’t start addressing this issues, they will all have to face Nortel’s situation at some point. This closed systems that they develop are not good for everyone and catering to wall street will not produce better systems either.
And the new players will take over. Specially in the small business market.

Lorie Ann July 23, 2009 at 7:45 am

I too think it is a very sad time for Nortel who was a giant around the world in telecommunications. I started working for Nortel in the late 60’s and worked for Northern for 14 years and it was an exciting place to be. I have mostly fond memories of working in Cooksville and then Bramalea. I remember working in the department where they were working on the World Wide Web and one of the programmers explained the whole concept to me. I can remember looking at him in disbelief and thinking he was kidding me. I just couldn’t fathom reaching people all over the world with your computer or shopping on line. Even though many people have lost their jobs and pensions – which is an ongoing issue, I think most of them would be proud of working for such a great company.

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