Nortel no more

Friday's late announcement that Nortel Networks has an offer from NokiaSiemens Networks to buy most of its CDMA and LTE businesses for $650million and is in advanced discussions to sell the rest spells thebegining of the end of the company, once a giant in this country. OnMonday, it will apply to delist its stock on the Toronto StockExchange. It didn't have to end this way, says telecom consultant IainGrant of the SeaBoard Group.

“Nortel came outof the 2002-2003 meltdown with a viable company,” he said in a Saturdaymorning interview. “But the board destroyed the value of the company bygoing through a series of witch hunts over the financial irregularities.

“Thejob of the board is to safeguard the interests of shareholders and tokeep the confidence in the company,” said Grant. “They did neither anddestroyed an iconic company.”

The company spent some $100million looking into the irregularities and had torestate its financial results for three years, fired its CEOand saw a number of executive charged with a variety of offences. Asthe years went by revenues dropped and layoffs mounted. Some of thatwas due to the company's focus on carrier CDMA technology, whereas mostof the world had chosen GSM, but in hindsight the internal machinationssurely affected its focus.

The first sign that the end was nearoccured in November,when another restructing was announced. What made this onedifferent, however, was that it was caused by an unexpected crash incustomer spending related to the world-wide slump in carrier spending.Then came word that attempts to find a buyer for its Metro Ethernetdivision were going nowhere. InJanuary it filed for bankruptcy protection. Since then itssales have largely relied on existing customers.

In a newsrelease issued after stock markets closed Friday, Nortel said it hassigned a so-called stalking horse agreement with Nokia Siemens Networks(NSN) to buy wireless assets, arguably the most valuable parts of thecompany. Because Nortel is in bankruptcy protection, any deal for thesale of assets has to be preceded by an auction to ensure shareholdersare getting the best price. Presumably the NSN offer could be trumped.The tenative deal specifies that at least 2,500 employees, most ofwhich now work in Ottawa and Dallas, would have the opportunity toswitch companies. Nortel that's is a “significant portion” of thedivisions.

If approved, taxpayers would support the sale throughExport Development Canada, which would give a $300 million loancommittment. Presumably that would allow the government to say it ishelping preserve Canadian jobs.

In a news release, NSN saidthat if approved the deal would enhance its strength in LTE, theso-called fourth generation wireless technology carriers are expectedto deploy in 2012. With Nortel's CDMA assets, NSN would dominate theCanadian wireless carriers as the supplier to Bell, Telusand Videotron. Presumably, it will also supply Public Mobile, the oneof the new wireless entrants, which used Nortel gear in February todemonstrate the spectrum it bought is viable.

NSN was quick tocollar customer support for its offer. “As Nortel's largest customer inCanada, Bell supports Nokia Siemens' plan to continue to fosterNortel's long history of research and development in Canada,” saidStephen Howe, Bell Mobility's CTO and senior vice-president of wirelessnetworks. “Bringing these assets of Nortel together with Nokia SiemensNetworks is good for customers like Telus and good for Canada,” saidEros Spadotto, Telus' executive VP for technology strategy.

Belland Telus' existing networks are CDMA-based, butthey are also building a GSM/HSPA-based parallel networkwhich is expected to go live next year. Equipment suppliersare NSN and Huawei.

Now the only question is who will take therest of the carrier business as well as the enterprise, MetroEthernet and LG-Notel joint venture divisions.

A Canadian business school should study what happened as a text book example of what not to do in a crisis, Grant said.

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Jim Love, Chief Content Officer, IT World Canada
Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@]

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