National security concerns raised again in Nortel asset sales

The fate of Nortel Networks Corp.’s enterprise unit will probably be sealed next week. AvayaInc. is the only company that has publicly announced it wants to buythe unit, but a major American telecom carrier is protestingthe sale.

Verizon Communications Inc. filed a motion with theU.S. Bankruptcy Court in Wilmington, Delaware asking a judge to orderAvaya to send a representative to a deposition scheduled Saturday. Ateleconference is scheduled for 3:30 pm Friday.

Toronto-basedNortel is operating under bankruptcy protection and is trying to sellof its assets so it can pay bond holders, pension funds and othergroups to whom it owes billions.

Verizon is concerned Avaya willnot provide service, such as maintenance, patches and softwareupgrades, for customer premise equipment sold by Nortel to Verizon andre-sold to enterprise and government customers.

For its part,Avaya issued a press release stating it “is engaged in discussions withVerizon to attempt to negotiate suitable arrangements for theassumption of the contracts referenced in Verizon's motion.”

Asan integrator, the carrier has installed switches and routers made byNortel at U.S. military facilities, the U.S. Congress, 911 callcentres, hospitals and local government agencies.

In itsmotion, Verizon stated: “The CPE products that Verizon obtains from(Nortel) are therefore essential to the communications needs of thesegovernment agencies, businesses and institutions. Moreover Verizonrelies upon the (Nortel) to provide ongoing repair, maintenance andsupport services, as well as spare parts, software upgrades, patches anfixes; warranty repair and other services in connection with theseproducts.”

Verizon warned if American government telecomnetworks fail due to lack of service, this “poses a significant hazardto the public’s welfare, security and safety.”

Nortel’sagreement to sell its carrier wireless assets to LM Ericssonalso sparked national security concerns for much different reasons.However, this was driven by executives from Research in Motion, whowere incensed that Nortel decided that instead of sellingRIM its LTE patents, those patents would be licensed towhoever bought Nortel’s CDMA base station business.

If it’s truethat Avaya does not plan to take on contracts Nortel has with itsintegrators, this should be a concern for other Nortel customers.What’s not clear from Verizon’s court filing is whether Avaya isoutright refusing to ever provide service to Nortel switches androuters or whether Avaya is simply refusing to abide by the terms ofone particular contract Nortel has with Verizon. Verizon has said Avaya“does not wish to take an assumption and assignment” of Nortel’scontracts to service Verizon’s customer premise equipment, in the eventthat it acquires Nortel’s enterprise business.

Avaya will notnecessarily acquire Nortel’s enterprise unit. The US$475 million saleagreement with Nortel was a stalking horse bid, meaning other companieswere free, until last Friday, to make competing offers. SiemensEnterprise is rumoured to have placed a bid, though theMunich-based manufacturer refused to confirm this.

Documentsfiled with the court indicate Avaya and Verizon’s lawyers arediscussing the issue, and Verizon only wants a sale blocked if Avayawins the auction (scheduled for Friday) and if the companies cannotcome to an agreement that “permits Avaya to designate the Verizon CPEcontracts for assumption and assignment …”

Whether Siemens orAvaya or another firm wins the auction, it’s highly unlikely the saleof Nortel’s enterprise assets will cause the U.S. government to suffera widespread phone outage. Avaya’s lawyers may think they can simplyget more money by negotiating more lucrative service deals directlywith companies and government agencies using Nortel gear, than bycontinuing to service carriers on the deals Nortel made with them.

Either way, the Avaya deal may not be so great for Nortel users.

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