"Nortel Deal Depressing Canada?"
If you're a networking geek, (and I am) the biggest
news of the week was the "acquisition" of Bay
Networks by Northern Telecom. If you couldn't
possibly care about all that routing and switching
and muxing, but you like to read about corporate
soap operas and wounded national pride, I've still
got your story.
When Northern Telecom bought out Bay
Networks last week, the reaction made no sense at
all. Here was a telecom equipment company who
had fallen behind the curve, and was scrambling to
get into the datacommunications market before
data nets took over telephony. The datacom firm
they bought was growing at close to 20% a year,
and after some past floundering had been turned
around by its dynamic CEO. So why did the market
tank Nortel's stock, to the point that S&P felt
compelled to issue a release that the company's
out look was stable? And why the harsh press up
in Canada?
That reaction had little to do with the logic of the
deal, and everything to do with Nortel's country
of origin. On the rare occasions where Americans
even notice Canada they see a vast, largely empty
country full of people who either speak bad
French, or English the way your 4th grade teacher
spoke it. When I think of Canada, I think of
Belgium -- a disunified country chronically on the
verge of falling apart, and who is continuously
beating itself up about being a second-tier player
in the community of nations.
Never having had anything that really unified the
country naturally, Canada has always looked to
technology for its national symbols, and as a
means of binding its people together. In the
nineteenth century railroads did the job.Over the
last century or so, the focus has been on
telecommunications, from the laying of the world's
first transatlantic cable to being the site of the first
intercontinental wireless transmission, to
developing that little innovation by the Canadian
inventor, Alexander Graham Bell.
In the states telecommunications was a business,
in Canada it was a national mission. While there
are still sections of Maine and the American
Rockies with no telephone service, Canada
provided ISDN to some of the most remote
settlements in North America. When Judge Greene
broke up the Bell System in the US, the parallel
organization in Canada stayed largely intact. Bell
Canada continued to act as stage manager for the
provincial telecom companies and, even after
partial divestiture, held on to over 50% of the
stock of it's equipment manufacturer, Northern
Telecom.
This rather cozy arrangement worked well,
especially after AT&T began to have competition
stateside. Neither the RBOCs nor long distance
competitors such as MCI were all that enthusiastic
about buying equipment from AT&T . Northern
Telecom's business flourished, and the company's
stateside business grew to the point that far more
of its business, and employees were American
than Canadian-- and predominantly --
overwhelmingly-- English speaking That was a
problem. Was Northern Telecom a multinational,
or still one of the Crown Jewels of Canadian
technology? Did it still belong to all of Canada?
Factionalism between Canadian and Americans
became a real issue at Nortel, and during the
infighting, people forgot to pay attention to the
market. Data networks were taking off. Nortel was
so focused on expanding traditional voice
telecommunications that it missed the significance
of this new, data-centric communications model. It
continued to think of data as an minor add -on to
be fit into telephone networks. As a consequence
it missed the datacom revolution.
Firms like Cisco and Wellfleet and others began to
fill the service and product gap that resulted.
While growth and profits slowed at Nortel, these
other firms exploded in size and number.
Northern's strategic problems began to worsen as
Cisco Systems began a series of mergers and
acquisitions that solidified its position as the lead
player in datacom, and as the Internet took off,
Cisco began to sell equipment to ISPs, local telcos,
and independent providers of wide area
networking services. In the meantime, AT&T spun
off Lucent technologies, which also began to
focus on the data market, and announced that
inevitably all communications, whether voice or
data, will be "IP based" that is to say they would
have to fit into a data-centric Internet protocol.
Northern Telecom was behind, and wasn't likely to
catch up without an acquisition.
The problem with an acquisition is that Northern
Telecom would become that much less Canadian.
Most Canadian analysts phrased it politely. One
Analyst commenting to The Toronto Star
said, "This is going to be a very difficult
acquisition to integrate from a corporate-culture
prospective, ... and from a management
prospective.'' One of the "integration" problems
was that the line of succession at Nortel now
seemed to include Bay Networks' Dave House.
The company was going to be less Canadian than
ever. Even the process of negotiating this deal
seemed to be relegating the Canadians to the role
of junior partners. "If you're a Canadian
investment banker, you have to be a little nervous
about who is winning mandates to restructure the
telecommunications industry" complained the
Globe and Mail, "Welcome to the world of global
competition", it said, noting that Canadian
investment houses are being shut out of
international deals affecting the fate of the country
because they are too small, too second tier--- too
Canadian.
Media commentary was relentless on the point
that once again Canadians had aimed for second
place. "Northern Telecom Ltd. has bought a chimp
to take on a gorilla." said the the writers at the
prestigious Globe and Mail who were sure that
Nortel "would be left twisting in the wind" by
some of its bigger competitors." (Nortel) is paying
a premium for a second-rate company,'' said a
portfolio manager at Davis-Rea Ltd. Nortel CEO
John Roth found himself actually having to
apologize for not trying to buy Cisco, even though
that company was not for sale.
There is little that is second-rate about Bay
Networks.
Although the market wasn't likely to buy some of
the inflated earnings expectations put out by Bay
and Nortel, The deal made a lot of sense. It would
provide product and a system integrator network
that Nortel needed. Bay would get financial muscle
to back its expansion and better penetrate world
markets. It also recognized that there is a sea
change occurring in the world of networking. The
line between voice and data, and local data nets
and wide area networks is blurring. It's not even
clear that the telcos are going to win the market for
broadband Internet services. If the cable
companies win their share, as seems likely, Bay is
one of the few companies who really seem to have
a handle on the cable modem market.
But the deal meant that Nortel would be less
Canadian, and less securely part of the Bell
Canada's family of companies. In fact, Bell
Canada's president, Jean Monty, seemed to be
focusing elsewhere. Monty is known to be
interested in Nortel's Canadian competitor,
NewBridge, and has increased Bell's interest in
Teleglobe. That Bell seemed to be willing to let
Nortel float out of its control for the first time made
many Canadian investors, used to the security of
the Bell System, extremely nervous. And the fact
that Nortel would be less-- theirs -- made many
Canadians feel extremely depressed.
andovernews.com
Mang |
