posted by: Mark Cortner
The recent filing by Nortel for bankruptcy protection is the latest in a steady stream of financial challenges the company has faced over the last several years. Nortel has a proud and rich history in enterprise voice solutions and is among the global leaders in the market. But given the company’s recent filing, many enterprise IT organizations are raising the question as to how the bankruptcy filing should impact their plans and strategies to continue to use or make new investments in Nortel telephony products.
The first step to answering this question is to assess whether or not Nortel will elect to continue to compete in the telephony market. Nortel will undoubtedly shed several product lines/businesses as a result of the filing although I’m not sure the enterprise telephony business will initially, if ever, be one of the lines of business that is divested.
The enterprise voice customer base would be attractive from an acquisition perspective, but the support liability associated with Nortel’s legacy platforms and the duplication of next-generation VoIP/IPT/UC products from those of a likely acquirer would diminish this value. I expect these assets to remain a component of the “new” Nortel and the line of business to be continued unless business conditions significantly deteriorate.
The second step is to look at customer deployment scenarios. If the enterprise is currently using legacy, circuit-switched technology then the issue of immediate concern should be product end-of-life/support. The vast majority of enterprises who have not started the migration to VoIP/IPT have life cycle commitments for the products they currently own, either from their third-party system integrators or directly with Nortel.
The bankruptcy filing enables Nortel to break any existing contractual commitments, so Nortel could potentially eliminate any warranties or support. The prior support commitments an enterprise has received from Nortel are likely a key component to the timing of its migration strategy to VoIP/IPT. Although it is unlikely that Nortel would completely eliminate its existing support commitments (unless it completed exited the enterprise voice business), the risk is rather if and by how much will the end-of-life/support timeline shrink. For example, those enterprises that are starting now with a 7-10 year migration plan may want consider accelerating this to minimally a 5-7 year migration.
Lastly, for many businesses that have chosen to use Nortel products for VoIP/IPT, they likely have an installed base of Nortel legacy voice products and may have a significant economic advantage to continuing to use Nortel solutions. If possible, these enterprises should consider slowing or delaying any continued migration to VoIP/IPT until Nortel has sufficiently restructured its business and is executing on a new operational plan. The enterprise IT organization should take this time to execute due diligence and revisit the rationale for selecting Nortel as a key partner. The process should be aimed at validating that the product selection has been made on the basis of key competitive advantages that Nortel is perceived to maintain over other competitive offerings. The next several months will be challenging. Nortel’s future position and success in the voice market will be determined by the actions they take, more than the words they say, in the coming months.
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