Bay Still Plans To Be A Player In Networking
Date: 7/22/98
Author: Michele Hostetler
Bay Networks Inc. is being bought out, but the networking-gear maker still plans to remain prominent in the industry.
Santa Clara, Calif.-based Bay is merging with Canada's Northern Telecom Ltd., also known as Nortel, in an
estimated $7 billion deal. Shareholders are scheduled to vote on the deal in September.
Bay Chief Executive David House says the company still will be an aggressive force. He points out Bay will take
over Nortel's networking operations. House also will become Nortel president under CEO John Roth.
House recently talked with IBD about the upcoming merger's effect on Bay and about how the Internet is changing.
IBD:
How will the Nortel merger change Bay?
House:
Bay will remain as an independent subsidiary of Nortel. We're going to do a reverse merger. We're merging the
enterprise data network division of Nortel into Bay Networks. That's about 3,500 employees merging into our 7,000 -
and about $1 billion worth of revenue merging into our $2.5 billion.
IBD:
How did the Bay-Nortel merger happen? Who approached whom?
House:
Actually, we sort of approached each other. I was in the process of dealing with the various (telephone company)
equipment manufacturers because I realized I had superior technology for which there was a big market in the
service-provider space, but I didn't have the sales contacts, the personal relationships and the channel.
I approached Lucent, Nortel, Ericsson, Alcatel and Siemens about our ability to supply products to and through them
that would meet their customer needs. It was out of those discussions that (Nortel CEO) John Roth first suggested to
me that maybe we should consider a bigger idea (through a merger). In fact, what I found when I began these
discussions about working together was that just about everybody had the same idea.
I had six different companies probe me about acquiring Bay Networks during the first half of this year. We figured
Nortel had the best product match, the best cultural match and the best strategic vision.
IBD:
What made the pieces click together to make Nortel the winner?
House:
It was probably John Roth: the way he and I hit it off. We found we had very common thinking and we have a very
common background. We started out as development engineers. I grew up in Michigan. He grew up a little north of
me . . . but always in the same basic area. We found we had shared ideas about how to manage and how to build a
company. I really felt John got it more than anybody else in the business. John really understands the changes that
are happening.
IBD:
What will happen to Bay's products that sell to Internet service providers and carriers?
House:
Suddenly we'll have a channel. Suddenly we'll have a way to get them sold. One of the frustrating things is, without
having established relationships with some of these players and without knowing the people at the top, it was very
difficult to make those sales. What we're seeing is intense interest now.
IBD:
When will the Internet and networks based on Internet Protocol become reliable enough to handle electronic
commerce and voice? What has to happen?
House:
There's a range of reliability that is out there in the networks today. I think Cisco has made itself renowned in a
couple of cases with some problems. But I think at the same time Bay Networks has been fortunate not to be in the
news, despite the fact that we run the largest Frame Relay network (long-distance transmission line) in North
America and some of the biggest and most mission-critical networks - like three of the top four airlines in the U.S. . .
. and most of the stock exchanges in the world.
The public Internet is sort of a hodgepodge of best-effort, student-class service. This offers both a problem and an
opportunity for the service provider. For the service provider, this is an opportunity to add value, add a business-class
Internet. By maintaining traffic within their own segment of the Internet, these companies with U.S.-based - and
soon to be worldwide - backbones are able to go out and offer higher quality, higher reliability and lower latency
times, and get paid for it because there's a real need for it.
IBD:
If you were to grade the Internet from one to 10 in terms of reliability, what stage is it at today?
House:
The big public domain, where 10 is best, is more like a two. I think you'll find that there are value- added service
providers out there. Concentric Networks Corp. is an example of a company that is out there providing
coast-to-coast backbone, full coverage of North America with overseas alliances to offer differentiated services.
I think you'll find more and more of that happening. Of course, there are major investments being made in these data
networking services, whether it be Sprint or AT&T. Everybody seems to be hellbent to add these new value-added
(Internet Protocol) networks.
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