Ericsson buying Nortel switch unit

Nortel Networks Corp. announced Saturday Telefonaktiebolaget LM Ericsson is buying the unit that includes Shasta and Passport switches for US$65 million.

Stockholm-based Ericsson, which acquired Nortel’s carrier wireless unit last year, picked up the multi service switch unit as a result of an auction.
 
A Nortel spokesperson stated in an email to Network World Canada that the business unit Ericsson wants to acquire has a total of about 240 employees, 63 of whom work in Canada, “primarily in Ottawa and Montreal.”

The spokesperson wrote that “substantially all” of those employees will “have the opportunity to transfer” to Ericsson.

Though it dominated the Toronto Stock Exchange 10 years ago, Toronto-based Nortel has been operating under bankruptcy protection since January, 2009, after losing money nearly every year since 1998.
 
Nortel has about 2,060 employees, about 500 of whom work in Canada. This is down from about 100,000 in the late 90s. 
 
 
 

Last month Nortel announced it had entered a “stalking horse agreement” to sell its multi-service switch assets to PSP Holding LLC for US$39 million. A stalking horse agreement is really an opening bid in an auction, meaning other companies can offer more money for the assets.


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PSP Holding was described as a “special purpose entity” backed by Ottawa-based startup Samnite Technologies Inc., which is headed by former Nortel vice-president Patrick Di Pietro.

 
Di Pietro noted Ericsson has not closed the deal yet, because it is still subject to regulatory approval.
 
“They have won the auction. They have not closed the transaction,” he said. He could not comment further on the Ericsson agreement because Samnite is still subject to a non-disclosure agreement.
 
But he said Samnite plans to acquire technologies related to data or wireless in the communications space, such as voice over IP, deep packet inspection or network performance.
 

“There are no more Nortel assets left,” he said. “That was the last business unit that was available.”

 

Di Pietro said Samnite is working with private equity firms to search for other potential acquisition targets.
Ericsson’s acquisition of the Nortel unit that makes code division multiple access (CDMA) base stations was also the result of an auction that resulted from a stalking horse agreement by Nortel to sell that unit to Nokia Siemens Networks.
 
A Toronto-based telecommunications analyst noted the multi-service switches Ericsson would acquire if Saturday’s deal is approved would help it satisfy its current CDMA cellular carrier customers, such as Bell Canada Enterprises Inc., Telus Corp., Verizon Communications Inc. and Sprint Nextel Corp.
 
“The MSS chassis and architecture is really a key part of the Nortel CDMA solution,” said Ronald Gruia, principal analyst for emerging telecoms at Frost & Sullivan. Gruia added this could help Ericsson sell its own carrier wireless technologies to those carriers.
Although Long Term Evolution (LTE) is considered the fourth generation of wireless, CDMA carriers who build LTE networks will initially use LTE for data, rather than voice, Gruia said.
 
“Everyone agrees CDMA has a long life,” Gruia said. “It will take a while before a customer like Verizon switches off CDMA.”

Nortel has also sold its enterprise assets, including the Contact Center product line, to Avaya Inc.


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Of Saturday’s deal with Ericsson, Nortel stated in a press release: “Ericsson’s purchase includes substantially all assets of the MSS business globally including the associated Data Packet Network (DPN) and Services Edge Router (Shasta) product groups. These agreements also include substantially all customer contracts and certain intellectual property related to the MSS business.”
 
The other major business unit Nortel sold was its metropolitan Ethernet and optical networking assets, to Ciena Corp. of Linthicum, Md. for US$769 million.
 
This is all part of Nortel’s efforts, supervised by bankruptcy courts in Canada and the U.S., to sell off business assets in order to pay bondholders, pensioners and other creditors.
 
“They are still burdened by obligations that they have to meet to creditors,” Gruia said. “It’s a matter of maximizing value to those people.”
 
There are still outstanding legal issues concerning Nortel. Its former CEO,Frank Dunn, was charged under the Criminal Code by the Royal Canadian Mounted Police in 2008 with fraud affecting public market, falsification of books and documents and false prospectus. The allegations have not been proven in court and the trial has not started yet.
 
Dunn was dismissed with cause by Nortel’s board of directors in April, 2004, three years after he replaced John Roth. The board replaced Dunn with an outsider, retired U.S. Navy Admiral Bill Owens. At the time, the board’s audit committee was reviewing the restatement of Nortel’s financial results.
 
The United States Securities and Exchange Commission sued Dunn in 2007 but has stayed its proceedings pending the outcome of the criminal case in Canada, according to Suzanne Romajas, the SEC’s assistant chief litigation counsel.
 
In late 2005, Owens was replaced by former Motorola Inc. executive Mike Zafirovski, who left the company in August, 2009.
 
Founded in 1895 as the manufacturing arm of Bell Canada, Nortel was known by various names, including Northern Electric and Northern Telecom.