Nortel's bankruptcy isn't the end, but the vultures are circling

Michael Morisy, News Writer
22 Jan 2009

Nortel's bankruptcy is certainly

not something for telecoms to take lightly

, but neither is it the end of the road for the storied telecom vendor.

Though some competitors will inevitably use the uncertainty engendered by Nortel's Chapter 11 filing as a chance to grab some market share, many customers are too entrenched with the company to pull out completely straightaway.

'These aren't companies that can just pull the plug tomorrow,' Akshay Sharma, a research director at Gartner, said of Nortel's customers, which include heavyweights like Sprint and Verizon. '[These customers] have a huge installed base and they will continue to do their upgrades and maintenance and expansions in their network.'

The most immediate threat to Nortel's business, Sharma said, is with greenfield customers that do not have a pre-existing relationship with Nortel. The company has agreements in place to maintain continued manufacturing of its products, but any new operators are likely to be wary about signing up with a company that may or may not be around during the next upgrade cycle.

Some competitors see opportunity even with those service providers at the end, or near the end, of a hardware cycle.

F5, for example, has launched a buyback program for Nortel's Alteon systems for those willing to switch over to F5's BIG-IP application delivery controllers.

'In today's economic environment, customers need confidence that they are relying on a stable market leader for this critical infrastructure,' said Dan Matte, SVP of marketing and business development at F5, in a statement. 'We appreciate the concerns that Alteon customers are facing.'

Tom Nolle, president of CIMI Corp., said service providers would be unlikely to write off more than an additional year of appreciation, but programs like F5's might encourage them to jump ship a little early, securing the competitor a customer win while chipping away at Nortel's base.

'You've got to look at this in a way that's sort of along the larger economic situation,' Nolle said. 'It's not that anything terrible has happened, it's that something terrible might happen.'

Particularly in tough economic times, even the perception of increased risk that might come from a major deal with Nortel could worry investors, so while Nolle predicts that there will not be a wholesale exodus, the next 90 days will be critical for Nortel to outline a plan that will detail which products it will continue to support and how it will ensure that those products continue to be supported.

'If they don't, the buyers with the smallest total commitment to Nortel "&brkbar; are going to start jumping in about 90 days if they don't see some clear plans,' Nolle said. Carriers with larger Nortel deployments will follow suit as time passes.

Sharma said that Nortel's strong customer base gives the company some breathing room, particularly since it has at least 50 of the largest 300 major service providers on its roster of customers.

He emphasized, however, that in the next few months, Nortel will face a tough juggling act. It will have to assure existing customers that its products and support will continue, which it has done well so far. It will also have to prove to investors and creditors that it has a plan for solvency, the details of which are still unknown but would probably include spinning off or selling some divisions.

So far, Nortel has been looking for a buyer for its Metro Ethernet optical division without much success, although some wireless segments might also be put on the auction block, Sharma speculated.

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