RedHerring interview w/Roth (NT)
herring.com
TELECOM'S BAY BRIDGE
Nortel's acquisition of Bay Networks
took the telecom industry by surprise.
CEO John Roth explains the reasons
for the pre‰mptive strike.
By Luc Hatlestad
The Red Herring magazine
October 1998
Nortel CEO John Roth, the leader of one of the world's
largest telcos, is difficult to reach by phone. With his
company beginning the battle to gain a lead on Lucent
Technologies, Cisco Systems, and every other
formidable company in the telco equipment space, Mr.
Roth can usually be found on airplanes, in
meetings--everywhere but in his office. Mr. Roth finally
cleared his schedule to tell the Red Herring about
Nortel's stunning acquisition of Bay Networks.
Why Bay Networks instead of Ascend, Newbridge,
or some other datacom company?
We were very strong in circuit switching, fiber optics,
and wireless infrastructure, and we have a good
background in ATM [Asynchronous Transfer Mode]
and packet switching. What we didn't have was routing
expertise or a good customer list for data networks. Bay
fit that description. Ascend's and Newbridge's products
overlap heavily with ours, so if we'd acquired either we'd
have been buying a competitor, not a company like Bay,
whose products are complementary. We're finding no
overlap at all in our product portfolios, which has helped
make integration much easier.
Most industry observers expected Lucent or Cisco
to make the first big move toward convergence.
Why did Nortel plunge ahead?
We felt that mergers were inevitable, and if this was
going to happen, it was better for Nortel to have first
choice than last. We had worked with Cabletron and
Shiva and with smaller companies; that helped us realize
what we were looking for. When we determined that
Bay wasn't aligned with anyone, that made the decision
easier.
Some analysts thought Bay was an unlikely target
for Nortel because its LAN equipment didn't fit
your needs. But now you're saying that Bay's LAN
expertise was a key to the deal.
We have a very good WAN product in Passport, but
requirements for the WAN actually start in the LAN.
People pioneer their network building in the LAN, then
extend it across their entire network. Our customers
came to us with this plan, but we hadn't yet figured out
how to do it. That put us at a market disadvantage,
because if we had been deeper into the LAN space,
we'd have seen these requirements emerge earlier and
been faster to market with complementary WAN
products.
What do your customers think of the acquisition?
Our having the whole bundle of LAN and WAN
equipment makes it much easier on our customers. They
really like the idea of a whole solution rather than a series
of boxes that they have to figure out how to put together
themselves. We're finding that since we've acquired Bay,
customers who own our PBXs [private branch
exchanges] are calling us to say, "Now that you supply
everything we need--data networks in addition to
PBXs--how about talking to us about a complete
package?"
The reaction from all our customers, including those that
were Bay's, has been extremely positive. They've been
greatly reassured that Bay is going to be around, and
they see a viable alternative to Cisco in this space. On
the carrier side, the customers are delighted because
they've been worried about who would help them build
their IP networks.
Were there ever any serious talks about a
Cisco/Nortel union?
Cisco wasn't for sale. Cisco CEO John Chambers has
been pretty clear in his opinion that mergers of large,
geographically disparate companies don't work. Also,
two large organizations working so closely together is
very difficult when you have two sets of shareholders to
satisfy.
What are Nortel's plans for future acquisitions?
We're strictly a network builder, so we won't get into
buying service providers like CLECs [competitive
local-exchange carriers] or any carriers. We will continue
to look for companies that might represent voids in our
product portfolio. Given our strong distribution channel,
we're now seeking products more than anything else, and
that's what we'll continue to shop for.
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