Nortel, Microsoft communications tie-up hailed

The announcement Tuesday that Microsoft Corp. and Nortel Networks Corp. have embarked on a broad, four-year alliance to develop and market unified communications products and services won kudos from users and analysts alike.

The Innovative Communications Alliance will result in new products for businesses and carriers as early as 2007 based on an exchange of intellectual property between the companies, Microsoft’s software expertise and Nortel’s communications savvy, the CEOs of the two companies said in a teleconference.

“The communications industry is at a real inflection point,” Microsoft CEO Steve Ballmer said. “In a few years, all of us will use next-generation devices for voice and data. The combination of service and support offerings from Microsoft and Nortel will enable enterprise customers to have unified communications.”

Nortel CEO Mike Zafirovski said a single platform tying together the expertise of both companies “is a giant win for our customer.” He said customers will see the cost of operating communications networks drop and won’t have to rip and replace networks to achieve unified communications improvements.

Over more than three years, the alliance will mean about US$1 billion in added revenue to Nortel for services and products, Zafirovski said. Ballmer would not discuss how much in extra revenue Microsoft expects, but he said hundreds of millions of people will get unified communications products and services in the next decade.

“If we can’t make that into a gigantic opportunity for Microsoft or Nortel, shame on us,” Ballmer said. “I know it’s a huge opportunity. … The key is to make it happen.”

Few additional details were announced, and the amount of investment by both companies was not disclosed. However, Nortel will send potentially more than 100 of its developers to Redmond, Wash., to work with Microsoft developers.

Their first task will be further integration between the Nortel Communication Server 1000 and Microsoft Office communications products, said Steve Slattery, president of enterprise solutions at Nortel. That effort will evolve into a portfolio that includes a voice server appliance and various terminals and devices to complete an Office communications suite of products, he said.

Anoop Gupta, vice president of Microsoft’s unified communications group, said several products rolling out in the second quarter of 2007 will include integrated Nortel elements. Those products, spelled out at a news conference last month, include Office Communications Server 2007 and a related Communications client.

Reaction by analysts and Nortel customers to the alliance was mostly positive.

“This represents two powerhouses coming together, and I don’t think there’s too much of a downside to it,” said Victor Bohnert, executive director of the International Nortel Networks Users Association (INNUA) in Chicago. He said the alliance with Microsoft helps Nortel re-establish its reputation as a market leader in the wake of a series of financial restatements the company has had to make in the past three years.

Jason Delp, president of the Pittsburgh-Western Allegheny Meridian Users Group, a small user group aligned with INNUA, said a Microsoft-Nortel alliance “would be a good thing for IT shops.” Having them work together could make IT operations more efficient and require less integration of various software tools, Delp said. IT shops are currently burdened by having to block third-party communications, such as instant messaging or consumer-grade voice-over-IP services, something a unified architecture might help, he said.

Delp is on the IT staff at Coventry Health Care Inc. in Cranberry Township, Pa., where Windows, Microsoft Communicator and a Nortel network are installed. “There’s always the possibility some Nortel users who are Microsoft haters won’t like this alliance, but you have to face it that from the corporate perspective, the trend is toward Microsoft applications,” Delp said.

He said he is not convinced that working with Microsoft will help Nortel that much. “After all its problems, Nortel is still in business and still around, but who knows for how long,” Delp said. “They’re on their way back, but they still have an uphill battle.

“Working with Microsoft could go either way for Nortel,” he said. “It could be the greatest thing to come along for Nortel or could fail miserably. Obviously, both companies thought it was a strong move.”

Another INNUA chapter president, Andy Rebar of the Heart of America chapter in Kansas City, Mo., said the alliance is “generally a good thing because of the strong market Microsoft has. [But] I wouldn’t say that I would drink the Microsoft Kool-Aid just because we have Nortel already. We’d have to look at the benefits and weigh the ins and outs.”

Rebar is on the IT staff at Fujifilm Sericol USA in Kansas City, Kan. He said Nortel’s alliance with Microsoft is “not a step backwards for Nortel,” but added, “It remains to be seen how it will pan out.”

Asked why Microsoft didn’t purchase Nortel outright with its ample cash, Ballmer said, “Seriously, Nortel is a great company that has a very different expertise than Microsoft has. We are not experts at enterprise networking, optical transmission, voice solutions and many things Nortel has done.” Ballmer said the two companies now have to figure out how “one plus one equals three.”

Zeus Kerravala, an analyst at Yankee Group Research Inc. in Boston, said the alliance’s impact on IT shops is that “it helps deliver communications integrated into the desktop faster than any one vendor trying to do it on their own.” Kerravala said the alliance could increase Microsoft’s lock on the office applications market, which might upset some IT managers.

Bill Lesieur, an analyst at Technology Business Research Inc. in Hampton, N.H., said the new Nortel-Microsoft alliance “will be pitted against the well-established Cisco-IBM duo in delivering IP telephony and unified communications.”

Ballmer said Microsoft is already competing with IBM and Cisco in many areas while at times also cooperating with them. “Customers will benefit from our energy and Nortel’s energy and what we bring together,” Ballmer said.

Rob Whiteley an analyst at Forrester Research Inc. in Cambridge, Mass., said the overall announcement is positive for IT shops and for both Microsoft and Nortel. The open question, he said, is how well Microsoft and Nortel work together.

“It needs to be a fluid operation and product, or their customers will go to Cisco, which has a fully integrated package” of unified communications software and networking, Whiteley said.

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