Why Business Partners Don't Want Nortel to Die

Analysis of News Events
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A longstanding relationship between IBM and Nortel appears threatened by Nortel's bankruptcy filing.


Buried on the Nortel Web site is a listing of a course the company offers its employees on how to take advantage of the opportunity its partnership with IBM presents. Called "Executing with IBM in 2009," the listing describes a course that "will provide confirmation of the Nortel Enterprise strategy of IBM as our lead partner for solutions and communications enabled applications..." Clicking on the course title, however, brings up a page that indicates the course is no longer offered.


There is nothing terribly important about a course listing with nothing behind it, but it's somewhat ironic given Nortel's sad condition as it gradually divests its assets in bankruptcy court. The court last month approved the sale of Nortel's data-switch business to Radware Ltd. for $17.7 million after Nortel was unable to solicit a higher bid. Nortel acquired the business that it will sell Radware in 2000 when it bought Alteron for no less than $7.8 billion.


It's almost unbelievable that a company whose stock was selling for as high as $860 (adjusted for splits) just a few years ago is now selling for a little over 20 cents a share. And that price is actually double what it was selling for a couple of weeks ago when it was going for a dime. Those of us who dabble in penny stocks actually could have doubled our money had we had more faith in the once-mighty Nortel.


Whether IBM's plans for partnering with Nortel on unified communications projects are on hold at the moment--or not--is speculative, but the Ottowa-based company's future clearly is in doubt. Back in 2007, the two firms announced plans to deliver a simple and cost-effective unified communications offering for SMBs that integrated Nortel's VOIP and multimedia applications with IBM's System i platform. The agreement helped foster the Nortel SCS500 for IBM Power Systems that delivers an integrated set of VOIP applications including voice, video conferencing, presence and instant messaging, find me/follow me, unified messaging, and other services. The solution enables collaboration by integrating with IBM Lotus Sametime and Lotus Notes as well as with Microsoft Exchange and Outlook.


As recently as April 3 of this year, Nortel CEO Mike Zafirovski told employees that "...we are continuing to deepen our partnership with IBM around unified communications by integrating our Agile Communications Environment with IBM's Lotus Sametime United Telephony solution." Apparently, work is continuing despite Nortel's extraordinary financial problems.


Zafirovski thanked employees for hanging tough during the difficult bankruptcy proceedings and noted that there are a number of positive signs that the company may emerge from Chapter 11 a leaner but stronger organization. Several industry analysts doubt this assertion, and there is speculation that Avaya might buy Nortel's enterprise business and that Nokia Siemens could buy its wireless assets.


None of this is particularly good news for IBM Business Partners who are gradually realizing that VOIP solutions represent a real opportunity to help their customers save money, sell IBM products, and generally improve their bottom line. But do they really need the headaches of overseeing notoriously fickle telephone systems? As they used to say at Hughes Missile Systems, where I worked for awhile, it's a dirty job, but someone has to do it. I think it's taking out the old PBX systems that Business Partners find most unpleasant.


In any case, having Nortel go belly up was not in IBM's game plan when two years ago it agreed to "joint interoperability efforts" promising to "foster an expanded ecosystem for third parties to develop and test new converged applications, joint innovation centers, and Nortel integrating with IBM's industry leading WebSphere software." The love fest between the two companies promised to facilitate the inclusion of Nortel VOIP and Fixed Mobile Convergence applications in IBM carrier solutions. IBM and Nortel said they would open a new IMS testing/innovation center at Nortel's Richardson, Texas, campus.


The companies touted their successful IP Multimedia Subsystem (IMS) carrier customer trials "across the globe" and said the two companies will "use each of their current IMS delivery and interoperability testing programs to accelerate and enable telecom application providers and carriers to bring new multimedia services to market," such as "presence capabilities, IP security/surveillance, child tracking, 'find-your-buddy,' video dating, and enterprise business applications with 'click-to-call' capabilities." These are all good things and lines of business from which Business Partners could earn additional income.


However, getting into the telephone business when you're actually in the computer business is not a slam dunk. When customers want a new phone system, they are likely more comfortable asking the telephone company than asking their computer consultant. Nevertheless, a number of Business Partners have installed VOIP systems successfully, saved their customers tons of money, and received kudos upon completing the job. Key Information Systems' installation of a 3Com VOIP system at the Fashion Institute of Design and Merchandising (FIDM) in Los Angeles was a resounding success, the school will tell you.


Whether Nortel survives or fails may already have been written, and the few VOIP systems that IBM Business Partners are likely to sell in the next few months may have little effect in the unfolding drama. Yet there are signs of life at Nortel, and those who summarily write off the company now may be in for a surprise later.


From comments made by industry observers, Nortel likely brought on many of its own problems with the kind of attitude and thinking that we most recently witnessed on Wall Street. Among the creditors in Nortel's bankruptcy proceedings is ex-CEO Bill Owens, who negotiated a very generous golden parachute for his relatively short stint as head of the company between April 2004 and November 2005. While he previously had served on its board of directors, Owens was given a package that included a payment of two years of his annual base salary, a special award of $5.4 million, a pension benefit that started with a lump-sum payment of $703,913 and included monthly payments of $99,073 over five years (November 2005 to November 2010), $173,076 in vacation payments, and $20,000 in a relocation allowance. The bankruptcy creditor's claim is for the last two years--or $2 million--of his monthly pension payments, according to Mark Evans in his blog All About Nortel.


Then there is the matter of Nortel's renting two luxury suites at Dallas Cowboys football games last fall and running up a $55,000 bill just before filing for bankruptcy in January.


So we don't necessarily feel sorry for Nortel, but we feel sorry for IBM's putting its faith in Nortel and for Business Partners trusting IBM to pick a partner that wasn't headed for a nosedive into bankruptcy court. Of course, back in 2007, Nortel was, for all intents and purposes, doing fine, and even when it filed for Chapter 11, the company had something like $2 billion in cash reserves. So who would have known?


But we wish Nortel and CEO Mike Zafirovski the best and are happy to report that the company has signed several new regional telephone carriers across the U.S. It seems Nortel's Communication Server (CS) 1500 is catching on among those regional carriers. Hancock Telephone, ArkWest Communications, Venture Communications Cooperative, and Dakota Central Telecommunications are among the latest carriers to select the CS 1500 solution, the company announced last week.


The CS 1500 is an IP multimedia soft-switch that gives regional subscribers and SMBs a low-cost but highly reliable solution for providing traditional voice services as well as multimedia applications like IPTV, fiber to the premises, and end-user Web portal access.


"It is clear that the value of our carrier VOIP and multimedia solutions are resonating with customers," said Samih Elhage, president of Nortel's Carrier VOIP and Applications. "The CS 1500 is high-performance VOIP in a small package that brings the latest voice and multimedia applications to regional carriers at a price they can afford." Elhage noted that the new equipment adds additional revenue-generating applications like unified messaging, single-number service, subscriber Web portal, and on-demand conferencing.


"These new applications help increase customer satisfaction and retention while providing regional operators with a VOIP platform that allows them to reap the maintenance and cost benefits of a converged network," he said.


Notwithstanding, a lot of work has gone into the Nortel-IBM relationship, and some very useful and leading-edge solutions have emerged. Let's hope that the company survives and that the benefits of that relationship will flow to Business Partners and IBM customers as originally intended. Despite Nortel's shortcomings, this may be one of those times in life when it's far better to firmly stand behind our friends and help Nortel by getting out there and promoting its solutions rather than waiting fearfully until it's too late to help a drowning companion.

Chris Smith

Chris Smith was the Senior News Editor at MC Press Online from 2007 to 2012 and was responsible for the news content on the company's Web site. Chris has been writing about the IBM midrange industry since 1992 when he signed on with Duke Communications as West Coast Editor of News 3X/400. With a bachelor's from the University of California at Berkeley, where he majored in English and minored in Journalism, and a master's in Journalism from the University of Colorado, Boulder, Chris later studied computer programming and AS/400 operations at Long Beach City College. An award-winning writer with two Maggie Awards, four business books, and a collection of poetry to his credit, Chris began his newspaper career as a reporter in northern California, later worked as night city editor for the Rocky Mountain News in Denver, and went on to edit a national cable television trade magazine. He was Communications Manager for McDonnell Douglas Corp. in Long Beach, Calif., before it merged with Boeing, and oversaw implementation of the company's first IBM desktop publishing system there. An editor for MC Press Online since 2007, Chris has authored some 300 articles on a broad range of topics surrounding the IBM midrange platform that have appeared in the company's eight industry-leading newsletters. He can be reached at



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