Nortel’s Enterprise acquisition by Avaya is being investigated by the US Dept of Justice. Canadian Jeff Wiener writes to DOJ with reasons to back the deal

by Jeff Wiener on August 28, 2009

Digitcom Logo Large
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U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530-0001, USA

To Whom it May Concern:

It has recently come to my attention that the Department of Justice has taken interest in Avaya’s acquisition of Nortel’s Enterprise division. While I understand why the DOJ might be interested in this acquisition, I believe any competitive concern is without merit. As a result, I would encourage the DOJ to allow the acquisition to proceed.

I write this letter to the DOJ as both an active Avaya dealer, and a telecom industry insider. The Avaya link is important to the extent that I speak from an Avaya perspective, while my industry knowledge from nearly 20 years in the telecom market, which has provided me with intimate knowledge of the competitive landscape.

It appears the customer premise equipment (CPE) business market consists of five major players, which hold the following market share:

Cisco = 20.9%
Avaya = 15.4%
Nortel = 11.5%
NEC = 8.3%
Mitel = 8.2%

These five companies hold nearly 65% of the worldwide market share for CPE equipment, and although the company I work for, Digitcom.ca, represents both the Avaya and Cisco product lines, the technologies representing the biggest competitive threats moving forward are surprisingly not on this list.

What are those technologies, who are those companies?

Microsoft
Skype
Google
Hosted VoIP

The CPE industry is going through a paradigm shift with a VERY rapid migration away from the CPE market toward alternate means of communication, including the four threats listed above. These are the technologies that are changing our industry. The fact that Avaya is acquiring assets as part of Nortel’s bankruptcy protection process is proof the CPE industry needs some consolidation to better prepare for the future.

It would seem that any of the top five vendors (really four if we exclude Nortel), would catapult that vendor to the number #1 spot (or almost). Effectively, any of the top four vendors acquiring Nortel would be uncompetitive and open to complaint.

Another index/measurement used by the DOJ to determine market concentration is the Herfindahl index. I quote a telecom colleague, Eric Krapf, who used the Herfindahl index calculation to see how concentrated the enterprise voice market would be under an Avaya-buys-Nortel scenario (Herfindahl is the index used for anti-trust purposes).

The bottom line is the market would be entering the realm of “moderate concentration”, but would be safely below the anti-trust threshold.

He suggests the: Herfindahl index would be 1,376, while “The Department of Justice considers Herfindahl indices between 1,000 and 1,800 to be moderately concentrated and indices above 1,800 to be concentrated.”

It almost seems like a moot point investigating the merits of a court-sanctioned acquisition when there are no other bidders. Perhaps you should wait until an alternate competitive bid is put forth, and, until then, the lack of market interest in Nortel’s enterprise division might explain the position both the asset is in and the industry in general. Furthermore, delaying this will only reduce the value of the asset being sold.

I urge you to allow quick and unobstructed approval of this acquisition.

Thank you – from your Canadian friends up north.

Jeff Wiener
President
Digitcom Canada Inc.
250 Rimrock Rd.
Toronto, Ontario, Canada
M3J 3A6
(416) 783-7890 X 201
www.digitcom.ca
www.thetelecomblog.com

More: Source of CPE data. Allan Sulkin TEQConsult Group

More: Rich Tehrani just posted his own blog about this letter. He mentioned that I had forgotten to add Open Source / Digium, Fonality as competitive threats. He’s right. Although I don’t believe any of these players have the resources to purchase Nortel’s Enterprise asset, they certainly do pose a large competitive threat to the CPE market.

More:
It looks like the post I did on Friday gathered some traction. Now hopefully it does the job. Here are some of the spots that covered our letter to the US DOJ:

Yahoo Canada Finance
Canadian Business
The Globe Report on Business
Fox News
iStock Analyst
Canoe
Winnipeg Free Press
MSN News
Metro News
Scottrade
The Chronicle Herald
Canada East
660 News
NG News
610CKTB
Prince George Citizen
AM1220

French News:
La Presse Affaires
Sympatico
JM Informe
Journal Metro
980FM
Yahoo Quebec Finance

Other Bloggers:
AllAboutNortel.com
TMC Net – Rich Tehrani

Jeff, www.digitcom.ca

{ 5 trackbacks }

A Letter to the DOJ Supporting the Avaya Deal
August 28, 2009 at 10:38 am
Digitcom’s letter to the US DOJ – followed by the media | The Telecom Blog
August 29, 2009 at 7:50 am
Digitcom’s letter to the US DOJ – followed by the media « TheTelecomBlog.com
August 29, 2009 at 7:52 am
Nortel’s Enterprise acquisition by Avaya is being investigated by the US Dept of Justice. Canadian Jeff Wiener writes to DOJ with reasons to back the deal « TheTelecomBlog.com
August 29, 2009 at 8:32 am
The Power of the Press Release
August 31, 2009 at 7:25 am

{ 4 comments… read them below or add one }

Joe Sus August 29, 2009 at 1:56 pm

Jeff,

I have to disagree. As a end user of Nortel BCM and CS1000 systems, I find that the features, ring tones, dialing sequences and voice quality of Nortel 1140E and M3900 series telephones far surpass that of Avaya telephones. Avaya phones are boring and dated compared to the 1140E styled phones. I am all for Avaya if they keep the Nortel line of phones, but I really do not enjoy the user experience of the Avaya sets, especially when comparing a Partner telephone to that of a Nortel BCM telephone or comparing a Definity set to that of an M3909.

Jeff Wiener August 29, 2009 at 6:02 pm

Joe: The quality of a phone system goes well beyond the handset, although I don’t disagree about it’s importance to the overall impression of the system in general.

I should correct you though – you seem to be comparing the Avaya Partner phone to the M3909. You should be comparing the Avaya 5410 to the Nortel T7316e (both digital sets), and the i2004 to the 9650, and in that comparison the Avaya set wins hands down in both cases.

BTW – The 5410 is full duplex, and paperless.

And either way, Nortel’s fate is already determined regardless of set type !

Jeff

Jim August 31, 2009 at 1:09 pm

Wouldn’t you say you have a biased view, considering you don’t even sell Nortel products?

Jeff Wiener August 31, 2009 at 2:36 pm

Great question Jim. And yes, I do have a bias. I suppose that’s what a blog is all about – presenting one’s bias and opinion and listening to contrarian views.

I’m certainly open to differing opinion though.

Jeff

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