Don't discount Nortel; it has the right stuff
A technological leader: Fired execs and class-action lawsuits screen the real story
John G. Smith
Financial Post
Tuesday, June 15, 2004
CREDIT: Wayne Cuddington, CanWest News Service
William Owens, who recently took the reins at Nortel, appears to be set to carry on the company's long tradition of research and development.
It is ironic that Nortel would have trouble spreading the word about its products, considering it develops communications equipment, and it hardly seems to have trouble generating headlines.
Many industry analysts blame once-lackluster sales and marketing efforts for failing to convey one of Nortel Networks Ltd.'s most compelling stories: Despite news of fired executives and class-action lawsuits, Nortel offers leading technology in several areas.
It recently unveiled products for emerging markets such as wireless networks and Voice over Internet Protocol (VoIP), which delivers voices over data lines; is a dominant force in optical technology; and has a definite edge over many competitors in privately owned telephone switches, or PBXs (private branch exchanges).
"Nortel's issues have never revolved around product," says Zeus Kerravala, vice-president in enterprise infrastructure at Yankee Group. He cites the Contivity equipment used in VPNs (virtual private networks): "It's really a rock solid box. It's the most stable, feature-rich VPN box out there."
Still, Nortel's share of the market that uses dedicated servers to link corporate networks over the Internet is measured in single digits. "Cisco [Systems] eats everybody's lunch in the data world," Mr. Kerravala says. "They're almost synonymous with the Internet." In this, Nortel is not alone: Siemens' dominant position in other areas of the world, for example, has failed to translate into North American market share.
"Generally, if you just want to forward data, they [Nortel] are as good as their competitor," says Albert Daoust, an enterprise networking analyst with Toronto-based Evans Research.
He blames past sales and marketing efforts for any weaknesses that exist in Nortel's data-related equipment. Without existing customers, Nortel cannot effectively refine features that translate into new sales, he says. "I don't think there's [the need for] a huge technology leap if they somehow got to sit down and figure out how to sell the damn things."
"No matter what your technology is, your installed base, the customers you have, is significant," says Elroy Jopling, a principal analyst with the Gartner Group.
Nortel has remained true to one of its strengths -- its 50 million Meridian telephones. Recently unveiled (and long-awaited) Succession 1000 software allows users to upgrade and meet needs for unified messaging, multimedia call centres, IP routing and data services such as firewalls and wireless connections.
The software brings Meridian into an IP world, says Alex Pierson, Nortel's general manager and vice-president responsible for enterprise networks. That is particularly important for mixed environments. Some customers are ready to introduce full IP services; some will have a mixture of equipment for years to come.
Nortel's leadership in PBX systems could become more important in the next few years, since such systems will typically last about seven to nine years before being depreciated, says Ronald Gruia, a senior strategic analyst with Toronto-based Frost and Sullivan. Many companies replaced their older systems in the late 1990s as they prepared for Y2K. "We're about to hit a major inflection point."
Nortel's long-standing commitment to research and development continues. Last year, it spent about a fifth of its revenue, or US$2-billion, on what has been a hallmark of its culture since the 1960s, when it was Northern Electric. The company unveiled digital switching in the 1970s, and led the way in optical technology in the '90s.
A high-end routing product unveiled in May gives cable companies the opportunity to deliver the coveted "triple play" of voice, video and data on a single platform. Most carriers need switches for voice and routers to deliver Internet traffic, but Nortel has combined those abilities.
Its VoIP products already have been adopted by Bell Canada, Verizon, Sprint and MCI.
Mr. Gruia credits John Roth, the former chief executive of Nortel, and his now-famous "right-angle turn" for preparing the company to compete in VoIP through the US$9-billion purchase of Bay Networks, an IP networking firm.
"If you're talking about a solution [that is] market-ready, commercially deployable, Nortel and Sonus are the only two players that have that," he says, adding it takes a lot of time to prepare a software switch that links traditional telephone networks to IP networks that handle a mixture of voice, fax, data and video.
Another area in which Nortel has been innovative is wireless service. This comes at a time when computer users are scrambling to unplug the Ethernet cables from their laptops and pluck data out of thin air. Nortel's Ottawa researchers and MIT's famed media laboratory began developing "mesh" technology in 2003. It will be available later this year.
Rather than wiring access points into the backbone of a broadband network, Wireless Access Point 7220 can communicate with a wired network up to a kilometre away, with help from an external antenna, says Todd Etchieson, Nortel's director of product marketing, wireless mesh.
A customer looking to create "hotspots" of access throughout a downtown area, for example, might require 130 access points and a T1 line for each one of them. A mesh design with the same number of access points only needs five T3 lines each carrying 45 million bits of data a second. This approach could be used on university campuses, at large factories or historic buildings, where it would be prohibitively expensive to run miles of Ethernet cables.
Nortel is one of a few suppliers with products that meet both UMTS and CDMA2000 dominant 3G (third-generation) wireless standards, which allow mobile phones to send voices and data such as software, e-mail or instant messages. The company showcased an early version of Orange France's 3G service at the Cannes International Film Festival this year, offering such things as video telephony and video mail television broadcasts, interactive gaming and business applications.
While many European companies are experimenting with GSM and GPRS (general packet radio service), time will tell which will become the dominant 3G platform. "From my own perspective, CDMA is the superior standard," Mr. Gruia says. After all, Beta was thought to be technically superior to VHS, he says
(Voluntary Disclosure: Position- Long)
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