Some of the many reasons NT is a long-term hold (from today's NYT):
MEXICO CITY -- Clearly, the history lay in the action, not the words. Before a mob of photographers, President
Ernesto Zedillo placed the first telephone call on a new fixed-wireless network being installed in Mexico City.
"De aqu¡ pa'ya," he said in slangy Spanish that literally means "From here to there."
Not as resonant perhaps as "Mr. Watson, come here. I want to see you." But the May 11 call made history
nonetheless because it marked another of Latin America's leap-frogging jumps into the future.
And it represented yet another landmark in the effort by the system's creator, Nortel Networks of Canada, to
become the next-generation Internet builder for the Americas. Perhaps more than any other technology player,
Nortel -- already a power further north in North America -- is capitalizing on the changes sweeping Latin America
as the company tries to make the entire hemisphere its home market.
The fixed-wireless phone that Mr. Zedillo used works like any home telephone except that it was not connected by
wire to the lines and poles run by Mexico's dominant telephone company, Telmex. Instead, the handset operates
by radio wave, like a cellular phone, but one for use only in a fixed location. An outside antenna is all that needs to
be installed -- a huge advantage in a country where it can take years to get a regular phone and where many rural
areas have never been wired.
President Zedillo's participation in the first call underscores the Mexican government's pride in the new system and
in Axtel, the Mexican-controlled company that runs it. But development and construction of the system was the
work of Nortel, a foreign company.
Competition has come to Latin America's telecommunications, and Nortel has come with it. The company is
building an essentially identical fixed wireless system in Mexico City for Axtel's main competitor, Unefon, and is
busy installing advanced communications systems throughout South America, Central America and the Caribbean,
with the exception of Cuba. Meanwhile, the company operates a wireless systems research center in Campinas,
Brazil, and produces wireless communications equipment in an adjoining plant. Last week, Nortel announced a
contract with GVT of Brazil, a local and long-distance telephone company, to install an advanced
telecommunications system -- including the backbone of an optical network -- for the capital city of Bras¡lia and
nine surrounding states.
Until recently, Nortel employed 2,000 workers in northern Mexico to produce telephone equipment there. In a
further attempt to focus on advanced systems, the company decided to sell the manufacturing operation to
Solectron, the world's largest contract maker of electronics, for $900 million. But the two companies then promptly
signed a four-year supply agreement worth more than $10 billion.
Nortel also is expanding in Asia and Europe; on June 19 it is scheduled to announce a number of alliances with
European companies that will collaborate with Nortel on the development of a new generation of Internet
technology for Europe.
In fact, Nortel is growing so rapidly outside Canada that doubts are being expressed at home about its corporate
citizenship, and a Canadian magazine recently asked, only half joking, whether the company had surrendered its
Canadian passport. Its headquarters remains in Brampton, Ontario, but more of its 75,000 employees live and
work south of the Canada-United States border than north of it. Fewer than 10 percent of Nortel's executives still
work in Canada, and just 8 percent of its $21 billion in revenues comes from there.
"Our roots are definitely Canadian, but we're a global corporation," said Martha Helena B‚jar, general manager of
Nortel Networks Latin America. She spoke during an interview at Nortel's Mexican headquarters on the 30th floor
of a downtown Mexico City building that bears the company's name. "We're not focused on a specific market;
we're focused on a segment, which is the telecommunications industry, including optical, Internet and wireless
services."
Nortel is not the only corporation to cast its shadow across the hemisphere, of course. The American automobile
companies have been doing it for decades, and both Nortel's fiercest competitors, Lucent Technologies and Cisco
Systems, are trying to make inroads into Latin America. But Nortel is notable for the way it has expanded by
exploiting the radical changes in the region's economic profile. As country after country has opened its market --
privatizing state-run enterprises, encouraging competition and liberalizing regulations to let technological change
flourish -- Nortel has seized opportunities.
And as the company rides the wave of change in Latin America's economies, it has been transforming itself from an
old-line manufacturer -- mostly of telephone network switching equipment -- to one of the world's leading Internet
and wireless communications equipment providers.
The company had its start in 1895 as Northern Electric and Manufacturing and did not become a major player in
the United States until the 1984 breakup of AT&T's Bell System prompted many of the biggest American
telephone companies to seek an alternative supplier to AT&T for network equipment. Yet, by 1997 Nortel had
grown to become second only to Lucent Technologies, the AT&T spinoff, as the largest manufacturer of standard
telecommunications gear in the world. The company is active in Europe and Asia as well as Latin America.
That year, though, John A. Roth, Nortel's newly appointed chief executive, decided that the company had to make
a "right angle turn" away from its customary business and into wireless communications, the Internet and what at the
time was considered a daring combination of them both.
Its strategy since then has been to acquire what it needs to get a toehold in the new market, then spend billions on
research in an effort to outrun rivals like Cisco Systems and Lucent in the race toward a better Internet.
Nortel has gone on a shopping spree and picked up many companies. But the biggest and most important so far
has been Bay Networks, a data networking leader, based in Santa Clara, Calif. The purchase, in 1998, was for
$9.1 billion in stock, roughly one quarter of Nortel's market capitalization at that time.
The task of melding Bay's Silicon Valley mentality with the century-old telecommunications manufacturer made
some analysts uneasy. And investors sneered at first.
Today, the Bay acquisition is widely regarded as the key to Nortel's successful transformation, a makeover that has
turned it into the biggest Canadian company ever by market capitalization and a global force to be reckoned with in
advanced telecommunications and the Internet. Nortel has tried to position itself as the inventor of a bigger and
faster Internet, a strategy featured in the company's television commercials, which put Nortel in the position of
asking people all over the world, "What do you want the Internet to be?"
Since the Bay takeover, Nortel has made $12 billion of additional acquisitions, many of them companies in the
United States that Nortel paid for with its own rapidly appreciating stock. Nortel shares reached an all-time high of
$72 in March, and even after the stock market's downdraft it remains one of the better performing
telecommunications stocks, traded in both New York and Canada. Its market value makes it the biggest blue-chip
stock ever in Canada, accounting for more than 30 percent of the market value of the Toronto Stock Exchange
300 index.
"The companies we bought are incubators, and they've each got a great idea," said Ms. B‚jar, a United States
citizen who was born in Colombia. "Nortel Networks comes in and gives closure to those great ideas."
Innovations like the photonic switching technology developed for fiber optic networks by Xros Inc., the California
company acquired for $3.25 billion in Nortel stock earlier this year, have broadened Nortel's technical arsenal. The
company hires a quarter of all electrical engineering and computer science graduates in Canada and spends more
on research -- $3 billion a year -- than the government of Canada or any Canadian company.
More important, Nortel's growing technological prowess has helped the company expand across the hemisphere in
a big way. Nortel first sold standard switching equipment in Latin America in the 1960's, but on a limited scale
because it was competing with entrenched multinationals like Ericsson of Sweden and Alcatel of France that
dominated traditional services in Latin America.
The rapid development of wireless and optical networks gave Nortel the chance to break in because they required
all new technology, not just an extension of existing service. Nortel has risen to No. 2, behind Ericsson in the
region's wireless market.
"We were able to get in with our wireless products in Brazil, Chile, Colombia and Central America, and capitalize
on the liberalization of the markets," Ms. B‚jar said. In some cases, as local regulations eased, Nortel's customers
converted existing cellular phone licenses to fixed wireless and to wireless Internet access.
Although Internet use in Latin America is comparatively small right now, advertisers, merchandisers and the
telecommunications companies see great growth potential in the region. According to surveys, only about 1.5
percent of the region's 500 million people now use the Internet, compared with more than 24 percent in the United
States. But Goldman, Sachs & Company expects Internet access in the region to double the next three years, while
rapidly developing economies like those of Brazil and Mexico could expand at a far quicker pace.
Certainly the wireless market has demonstrated the region's growth potential. In 1995, there were 4 million wireless
subscribers in Latin America; by the end of last year, that number had risen to 30 million, roughly the population of
Canada. By 2003, the wireless market in Latin America is expected to be 70 million.
Countries like Mexico enjoy something of an advantage when it comes to such advanced technology. Existing
systems are so primitive that little is worth saving. Everything old can be replaced with the newest generation of
technology.
"We have a lot of customers who take pride in leap-frogging over existing technologies and bragging, 'I have the
same technology that MCI WorldCom has,' " Ms. B‚jar said.
Jorge O. Mariscal, managing director of Latin America Equity Research for Goldman, Sachs said: "What we've got
now is an almost seamless Americas market. The combination of regulatory changes and market liberalization have
worked toward creating a strong operating environment for not just international companies like Nortel but local
companies, too."
He cited the example of Telmex, which after losing its monopoly on long-distance and local telephone service in
Mexico, has been busy expanding into the United States and Puerto Rico.
In the end perhaps, the most obvious motivation for Nortel's transformation and push to expand is the limitation of
its home base. Canada, the company's home for over a century, is already a well wired and mature market,
whereas Latin America remains young and full of potential.
"If you plot out the growth of wireless in Latin America it really looks like a hockey stick, fairly level and then
zooming right up," Ms. B‚jar said. A hockey stick seems a strange metaphor for a native of Colombia to use to
describe a telecommunications market. But like Nortel itself, there's no question of where it had come from.
"I guess that's Canadian, eh?" she said.
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