How Nortel Deal-Making Continues in Bankruptcy
Despite its prolonged insolvency, Nortel Networks Corp. (NT) is signing deals with companies around the world, from coffee makers and professional services companies to the American military. The latest resale announcement comes courtesy of BT Global Services (BT), a division of the UK telecom giant that’s struggling just about as much as Nortel itself. BT and Nortel said on May 18 they have renewed an agreement they’ve had in place for some time – BT will resell Nortel’s enterprise equipment and services for another four years.
Nortel’s latest coup comes on top of other recent, similar announcements. Professional services firm Deloitte just installed Nortel’s unified communications platform in its Moscow offices. German coffee icon Melitta is using Nortel’s data center products. And government contractor General Dynamics has ordered Nortel’s Assured Services Local Area Network products for McChord Air Force Base in Washington state. Further, Nortel has named value-added distributor Westcon Group as its go-to-market channel in Thailand, Vietnam and the Philippines.
Each of these arrangements means partners and end users expect to receive Nortel service and support for years to come. And, indeed, in each instance, the customers praise Nortel’s technology and low costs; noticeably absent – and not atypical for corporate statements – is mention of their faith in Nortel’s viability.
Indeed, how can Nortel, a company that likely will be sold off in pieces rather than emerge from bankruptcy intact, keep forging such long-term commitments? And what kinds of safeguards are placed into the transactions in case Nortel does fall apart?
Valid, Difficult Questions
“These are valid questions that are difficult for me to answer,” Jamie Moody, a Nortel spokeswoman, told VON. What she could offer is that, while in bankruptcy protection, Nortel is “100 percent bound by terms of any new contract.”
And since neither Nortel nor BT nor others are disclosing the terms of their agreements, industry observers are left to speculate on the seeming conundrum of a struggling company signing customers. Several analysts are hypothesizing about Nortel’s relative success in keeping and adding clients.
For starters, it’s important to note the enterprise business is landing the most deals, and it’s one of the top five vendors worldwide in enterprise voice, said Alan Weckel, director at research firm Dell Oro Group. (The carrier unit did score some wins in the first quarter, however.) Thus, even if a competitor such as Alcatel-Lucent (ALU), Avaya Inc. or Nokia Siemens Networks ends up buying Nortel’s enterprise division, as rampant industry rumor has it, the resulting entity will be “a valid solution in the market,” Weckel said.
Brian Riggs, research director in Current Analysis’ enterprise software and communications practice, agreed.
“It’s likely that a lot of [Nortel’s] products and relationships will remain in place for some time to come,” he said.
From that perspective, it makes sense that many of Nortel’s customers would stick with the company. And that probably helps explain those users’ confidence: It’s quite possible that Nortel has made BT, for example, privy to certain goings-on. For weeks, media and Nortel insiders have said Nortel is about to sell the enterprise business. If it’s on the verge of such a pact, Nortel might well have assured BT about service and support continuity. Or, said Sapien, there’s legal language that would let BT make changes in case someone buys all or part of Nortel.
Nonetheless, at least one analyst is wary of any deals Nortel might make.
“Nortel does have a history of not honoring contracts,” said the expert, who requested anonymity. “We’ve seen that with the employees losing their pensions, distributors filing suits in order to get paid. That’s only going back to the December time frame so there is an issue there. One would think a company like BT … would write something into the contract to protect them.”
Terms of the BT-Nortel agreement were not disclosed and BT did not return an interview request.
