In an attempt to improve its prospects and attract enterprise customers in the process, Nortel Networks Corp. has unveiled a new corporate structure, sold off two business units and prepared a new IP telephony platform for market. But will all this rocking and rolling help the firm realize its goal?
The changes from the beleaguered Brampton, Ont.-based network-gear maker were announced in October. First, it announced plans to scrap its previous business line triumvirate in favour of a four-tiered approach. Gone are the Metro and Enterprise Networks and the Optical Longhaul Networks divisions. The Wireless section remains and the company introduced three new divisions: Wireline Networks, Enterprise Networks and Optical Networks.
Will this four-way corporate structure help bring Nortel back from the brink? Only time will tell, said Warren Chaisatien, senior analyst with IDC Canada Ltd. in Toronto, adding that the new setup “is important. With the old structure, there wasn’t much dedicated to the enterprise. We all know the enterprise market has long been dominated by Cisco (Systems Inc.). I think [Nortel needs] to get that business unit up and running quick in order to compete….But it remains to be seen how well they’ll do in this marketplace.”
If the Enterprise division fails to catch on with corporate spenders, Nortel has a tough decision to make, Chaisatien said.
“I wouldn’t be surprised if Nortel had to bite the bullet and do something about [the Enterprise division] – maybe get rid of it or streamline it even more.”
He added that the company faces an uphill battle.
“Hopefully [customers will] see a difference, but it requires a lot of marketing and communications.” Chaisatien said it may be difficult for the company to get the message that Nortel is dedicated to the enterprise across.
Still, it’s no longer in Nortel’s best interests to rely on carriers for the bulk of its revenue, other observers said, citing decreased capital expenditures among service providers.
“If you look at the figures for North America, the [capital expenditure] as a percentage of total carrier revenue have gone down from a high of 40 per cent in 2000 to about 15 to 20 per cent this year,” said Ronald Gruia, an analyst with Frost & Sullivan in Toronto. “And it’s going to be flat for quite a while.…Some people say what’s going to help take this market out of the quagmire it’s in is the enterprise.”
But Nortel has not turned away from its core audience, either. Witness one of the firm’s latest products, the Interactive Multimedia Server (IMS), an IP telephony platform designed to bring new functions to Centrex.
John Egli, manager, technical marketing, and Elaine Smiles, director, cable marketing with Nortel, were on hand in Brampton recently to demonstrate the IMS. The duo showed off the platform’s capabilities, mixing and matching on-demand video conferencing with e-mail, instant messaging (IM) and voice mail messages. They exchanged missives among phones, desktop PCs and even handheld devices.
“A lot of what we’re doing you’ll find in other applications,” Egli said. “But there are a couple of things we’re doing differently. One is integration. The other is security.”
IMS brings IM inside the corporate network, so employees need not exchange confidential information via public IM programs like Yahoo!’s offering. As well, IMS brings IM together with videoconferencing and e-mail for an integrated solution, Egli said.
So far just one Canadian company is considering the IMS: Bell Canada. The telco is trialling the device among its big Centrex customers.
“A lot of our large customers over the past few years have had an interest in IP,” said Leo Seto, a managing consultant with Bell. “We want to make sure we’re looking ahead.”
Seto said Bell is in the primary “technology trial” and has yet to deal with marketing – learning what features customers expect from the IMS and how much they expect to pay. He said Bell would not roll out IMS service until late 2003, adding that the telco is looking at other vendors’ IP Centrex platforms as well as Nortel’s, although he would not name names.
Does Nortel’s new business structure impress the telco?
“We are looking at one of their leading-edge products,” said Andrew Cole, another Bell spokesman, adding that the telco is often impressed with Nortel’s technology. But as far as the equipment vendor’s new corporate formation goes, “what they’re doing internally is their business,” he said.
Chaisatien, who attended Nortel’s IMS demonstration, said the functionality is “very impressive.”
“I expect that once it hits the market, large corporate customers would be the target, not the SMBs (small and medium businesses). I don’t know the price point, but I don’t think it’s going to be cheap. Unless you’re a very big organization with multiple branches and a lot of meetings and real-time communications needs, this would not be for you.”
Will this boost Nortel’s prospects?
“Based on this product alone, I don’t think so. It will be a very nice addition to the IP portfolio that they have.”
Beyond IP, Nortel’s portfolio is shrinking. The company in October announced it would let go its optical transmitter and receiver business, as well as the pump laser and amplifiers business, and sell them to Bookham Technology plc, an optical component maker headquartered in the U.K. The decision could be painful for some of Nortel’s Canadian employees. Approximately 300 people could lose their jobs when the firm completes the Bookham deal. The transmitter and receiver business keeps a location in Ottawa.
Nortel would not divulge just how many Canadian employees would be affected, saying it “does not provide a breakdown of numbers by region or city.” The company said approximately 1,300 employees worked in the optical component business at six sites around the world. About 1,000 of those employees will have the opportunity to work for Bookham if the deal goes through.
Among the changes Nortel is making, Frost & Sullivan’s Gruia notes a strange personnel-related one: Frank Plastina, formerly president of Metro and Enterprise Networks, has left the company.
“It was a little bit shocking,” Gruia said. “I didn’t expect Plastina to leave like that.”
Plastina seemed to be next in line for the CEO position, Gruia said, noting how the up-and-coming exec spent 15 years with the company, shuttling about the divisions, ostensibly to gain the breadth of experience a corporate leader would require.
“He would have been a good guy to have as CEO,” Gruia said. “I thought they were grooming him for that.”