Mark Evans

Where there's smoke, there's fire

The notion that there's something terribly wrong at Nortel continues to gain momentum. If the audit committee looking at its financial statements for the past four years discovers something serious, it could mean serious trouble for CFO Doug Beatty, controller Michael Gollogly and, most important, CEO Frank Dunn - who was Nortel's CFO from 1999 to 2001.
It's strange that Beatty and Gollogly look like they're taking the fall, while Dunn quietly hides behind the curtain - hoping this controversy disappears soon.
On the other hand, if the audit committee only finds minor accounting issues, then you could accuse Nortel and Dunn of over-reacting with the decision to give Beatty and Gollogly the boot - at least temporarily - and spooking investors.
Ultimately, Dunn has to stand up and take responsibility for what's happened. From what I can tell, it looks like the board is trying to protect Dunn by keeping him out of the fray. The question is how long they can pull off this strategy.

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Nortel's Accounting Woes (Part II)

So what's going on with Nortel and how have they managed to drop the ball from a communications perspective in the latest chapter of their accounting soap opera. It was bad enough last week when the company said its 2003 annual report would be delayed because an “independent” audit committee needs more time to compllete a review of its financial statements. Now, it has put its CFO and controller on paid-leave until the review is complete. So what gives? How come Doug Beatty and Michael Gollogly get to walk the plank while CEO Frank Dunn sends soothing e-mails to employees? It looks like Beatty and Gollogly are being sacrificed as scapegoats for Nortel's financial woes. What happens if the restatement is minor? Do Beatty and Gollogly get to walk back in from the cold with their reputations still intact? Bottom line: Nortel's IR and PR teams blew it.

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Nortel's Accounting Woes

The news that Nortel will have to delay its 10-K filing to the Securities & Exchange Commission may or not be a troubling development. It may be that the special audit committee looking at Nortel's financial statements from 2000 to 2003 want additional time to dot the “Is” and cross the “Ts”. Or it could be they have found something significant, although it appears that would be a surprise. What the 10-K delay should really draw attention to is the complexity of Nortel's financial results. Unless you have a lot of time and some sophisticated financial training, it is near-impossible to get a clear idea of the telecom maker's performance. Ever since the telecom boom started in the late-1990s, it is hard to determine how Nortel is really doing. If you look at Nortel's Q4 results - nortelnetworks.com/corporate/news/newsreleases/2004a/01_29_04_q403_earnings.html - you'll get a handle on this problem. The company posted EPS of US11cents but five or six cents were due to items such as net earnings from discontinued operations - net of tax. Although this item is not part of Nortel's ongoing business, they choose to include it, which is somewhat misleading.

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Be Very Afraid of VDSL

If you think carriers are concerned about cablecos moving into the telephony business, perhaps the cable boys should be afraid of new technology that will let carriers offer digital television. Apparently, Ikanos Communications and Metalink have chip sets that will push VDSL deployments to 100 Mb/s and beyond. If you think about it, high-definition TV requires network speeds of about 18Mb/s. If this technology works, the carrier-cable battle is going to get nasty.

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Where are the deals?

In light of the flurry of online deals recently - Ask Jeeves-Interactive, MemberWorks-Lavalife - it makes you wonder if anything will happen in the telecom sector. Why have Nortel, Cisco and Lucent have been inactive? They've certainly made their share of acquisitions in the past, although Nortel's John Roth probably went a little deal-crazy in the late-1990s. I guess they must be a little gun shy but you have to wonder if they have got all their bases covered, especially with IP emerging go quickly.

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Nick Kauser - mystery man provides secret wireless sauce

In Monday's National Post, you'll find a profile on Nick Kauser. Not known to many people outside the wireless industry, Kauser is the “brains” behind the new high-speed wireless joint venture involving Allstream Inc. and Microcell Telecommunications Inc. The technology being used was developed by Kauser when he was working at AT&T Wireless Services in the mid-1990s. Unfortunately, AT&T had no confidence in the economic prospects of “Project Angel” and shelved the business in late-2000 after launching it in several cities. Undaunted by this failure, Kauser is obviously hoping it will have more success this time around.

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Microcell-Allstream launch new wireless service..Ho, hum

It was interesting to see the lack of media coverage garnered by the launch yesterday of a new wireless Internet service by Allstream and Microcell. (That would explain the flurry of e-mails and telephone calls I received from their PR folks) Maybe it is the fact the “launch” is happening in only one place - Richmond, B.C. You have to think that hype doesn't do the job anymore. It's great that the service is live but no one is going to get overly excited until they see what kind of inroads it will make with consumers and small business owners. One of the biggest challenges facing the new venture is that most people are pretty satisfied with their existing high-speed service. Then, you have Canada's high level of high-speed penetration, and it doesn't look like the new venture has much room to play. The key could be the new venture's willingness to use price as a marketing weapon given that Telus, Rogers, Bell and Shaw have been unwilling to lower prices - aside from introductory discounts for new customers.

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Craig McCaw Saves the Day

So what do you think of Craig McCaw investing C$50-million in Microcell Telecommunications Inc., the ugly-duckling of Canada's wireless market? It's a bit of a head-scratcher because McCaw has not been an active investor north of the border - aside from his ownership of the Vancouver Canucks hockey team. From the sidelines, it looks like McCaw could have two goals: 1. by taking a major ownership stake before Canada's foreign-ownership rules disappear, it could let McCaw increase his holdings in the future while having initimate knowledge of Microcell's operations; 2. it will give him insight into a high-speed wireless joint venture Microcell is doing with Allstream Inc. and NR Communications LLC. NR, by the way, is run by Nick Kauzer, who was McCaw's right-hand technology-man before McCaw Cellular Communications was sold to AT&T Corp. in 1994.

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