Against the odds

The financial difficulties being faced by Canadian infrastructure vendor Nortel have been well documented, culminating in the company filing for Chapter 11 bankruptcy protection in January. As the vendor continues to look to ways to survive, Comm. took the opportunity to meet the men in charge of running the Middle East operations of the business, and found an atmosphere of quiet endeavour as this region continues to undertake business as usual

Nortel CEO Mike Zafirovski says that in order to provide maximum flexibility the company continues to listen to all suggestions

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In the middle of May, Nortel’s CEO confirmed the vendor was in talks with several potential buyers over selling its divisions, as the company posted a US$507 million loss for the first quarter of this year to end-March.

“Decisions have not been taken and we continue to evaluate our restructuring alternatives. To provide maximum flexibility we are also taking the appropriate steps to complete the move to standalone businesses,” CEO Mike Zafirovski stated.

In April Nortel was granted an extension until July 30 to work out a recovery plan. It is currently undergoing a process to conclude the transition of its Carrier Networks, Metro Ethernet Networks, Enterprise Solutions and its LG-Nortel joint venture business units, a process that commenced in 2008.

According to news reports, Nortel declined a US$850 million offer by Nokia Siemens Networks in March for a large share of the carrier networks unit. Later reports suggested that enterprise communications firm Avaya was negotiating an agreement for Nortel’s enterprise unit, however, the two companies are said to have failed to close a deal.

Nortel’s first quarter loss of US$507 million was an increase by 267 per cent year-on-year, from a loss of U$138 million during the first quarter of 2008. Revenues decreased by 37 per cent year-on-year to US$1.73 billion during the period, largely impacted by currency fluctuations. Nortel’s cash balance rose to US$2.48 billion compared to US$2.4 billion in December last year.

“We accomplished our initial objectives of maintaining our customer commitments and strengthening our operational performance. Network performance and customer service levels are at multi-year highs and customers are expressing their support of Nortel,” Zafirovski said.

Bruce Gustafson, Nortel’s vice president of strategic marketing for the carrier networks unit had earlier indicated that the company would give serious consideration to any offers to buy divisions in the company as it restructures under court approved bankruptcy protection.

“We will go through the process of having those discussions,” Gustafson is quoted as telling a news wire. The company is “obligated” to squeeze the most out of its assets amid the reorganisation, he said.

Nortel is understood to continue to attract a level of interest in its two core operations – the wireless infrastructure division and its corporate telecoms hardware operations. The network infrastructure division posted sales of US$4.3 billion in 2008, while the corporate telecoms hardware business generated sales of US$2.4 billion.

In Nortel’s Dubai office, there is little inkling of a company under threat. Office space has doubled in the past couple of years as headcounts have risen. Earlier this year the vendor opened an executive briefing centre (EBC) in Dubai, in order to showcase its networking technologies and provide first hand demonstrations on how Nortel solutions can help Middle East customers.

The new EBC, Nortel’s first in the Middle East, will host and test a range of enterprise solutions for unified communications and multimedia networking.

Eric Roleof is responsible for driving the growth on Nortel’s carrier side of the business in a focussed manner

The Dubai EBC is the sixth to open in the Europe, Middle East and Africa region. Other Nortel EBCs are located in Maidenhead (UK), Harlow (UK), Galway (Ireland), Frankfurt (Germany) and Chateaufort near Paris (France).

“Customers want to look and feel and test solutions, and watch them working in front of their eyes,” says Apollinaire Moreno, Nortel’s sales engineering manager for the Middle East. “This is the largest EBC in the region, and what it enables is for current and prospective customers to be able to utilise the facilities here without having to travel to Europe or North America in order to preview Nortel’s latest technologies and solutions,” he adds.

Ramin Attari, Nortel’s vice president and managing director for the Middle East and the executive in charge of the enterprise solutions side of the business, says he continues to see strong customer demand across a number of sectors, including hospitality and healthcare. “Nortel has always been very strong at developing industry-specific solutions, and in healthcare, for example it is more than simply providing WANs or LANs,” Attari explains. “There must be an underlying understanding of what the enterprise’s needs really are as decision criteria have changed,” he adds.

Nortel is fortunate to enjoy a strong installed base in the Middle East and the first quarter of the year witnessed some significant wins by the vendor around the world. “These are challenging times, but they are also exciting times,” says Attari. “Collaboration plays an enormous role in the business we are in, and we are facilitating the transition so that work becomes a function not a place,” he adds.

Attari has always maintained that the key to success is to maintain relevance to your industry and your customers, and he believes Nortel continues to do this well. “We have relationships in the region going back decades, and throughout this period of time we have maintained our relevance. “Today, I’m seeing traction as we tailor our solutions. It has come to the point where for me to do my job well, I need to understand my customer’s customer.”

Attari’s counterpart on the carrier side of Nortel’s business in the Middle East believes the company’s technology leadership in a number of areas ought to help it maintain its momentum during the difficult economic climate.

Eric Roelof is carrier sales director for Nortel in the Middle East and describes the region as a major opportunity not just for Nortel, but for the entire industry. From his perspective, it is clear that the region is one of the few around the world where there is clearly projected growth going forward.

“It is certainly an area of focus for Nortel,” Roelof asserts. “I would say that the Middle East is one of the key growth regions identified within our EMEA organisation and I think that is for the carrier business as much as for enterprise.”

Roelof has been in the region for about a year-and-a-half, and describes his responsibility since having arrived as being to drive the growth on the carrier side in a focussed manner. “That is focus both around a number of solution sets that are particularly relevant for the region, and also to have priority focus on a few specific countries,” Roelof states. “It is that relevance that is critical to our industry today,” he adds.

When Roelof refers to a focus on solution sets, a primary one for Nortel in the Middle East is its carrier VoIP portfolio. Having won a contract with the UAE’s second operators Du last year, Roelof believes this is an area in which Nortel continues to show market leading prowess in.

“The contract with Du comes on the back of similar positions in Egypt, Turkey and Morocco. If you look at why we remain optimistic even in a difficult environment it is because what we have in Nortel is a number of world-beating propositions, and this is one of them,” Roelof contents.

Attari believes knowledge of enterprises’ needs is most important

According to Dell’Oro Group, Nortel is the worldwide leader in carrier VoIP and has maintained that position since 2002. Nortel has shipped more than 100 million carrier IP voice and multimedia ports to over 320 carriers globally as well as eight million SIP lines deployed globally.

“On the SIP side, which is really the up-and-coming technology that allows true convergence, and allows a very high level of VoIP integration into applications, we have shipped a large number of lines of that technology. So we are coming from a very strong background, and the picture for the Middle East is that we have a well-established carrier business, as we do in North America and Western Europe.”

Nortel is also raising its activities in carrier hosted services, or managed services, having won a large government VoIP contract in partnership with BT in Spain based on an IP Centrex solution. Roelof believes this trend will start to gain traction in the Middle East as well.

Despite the challenges, Nortel continues to invest significantly in new technologies and is doing precisely that around WDM-PON, which is a next generation fibre-to-the-home (FTTH) technology.

“The thing that makes us feel strongly about this is that it is a technology we have available today. We launched it at GITEX last October and we have had a lot of positive responses from the region, and are talking with some of the leading operators,” Roelof says.

While the business in the Middle East does appear to be ticking over relatively smoothly, Nortel’s operations in this part of the world cannot hide the serious issues facing the company on a global basis. Nortel enterprise customers have pressed “a pause button” in purchasing equipment from the company, the head of Nortel’s Enterprise Solutions group acknowledged late in May.

“Customers appear to be waiting to see what Nortel will look like when its restructuring plan due July 30 is revealed,” said Joel Hackney, president of Nortel Enterprise Solutions, at the Interop conference held in Las Vegas between May 17-21.

“We’re seeing a pause button in a large portion of our customer base,” Hackney continued. “It’s caused by the economy and Nortel’s position.”

It is clear that much will ride on the options Nortel decides upon in the coming weeks.