Mark Evans

The End of Nortel?

Is the end in sight for Nortel?

After announcing plans for even more restructuring, including the sale of its Metro Ethernet Network business, investors are bailing on Nortel - The stock is down 40%, or $2.14, to a all-time low of $3.15. It now trades at 0.24% of its record high, and sports a paltry market cap of $1.57-billion.

The big question is whether Nortel’s struggles are specific to a company struggling to reinvent itself, of an indication the telecom equipment market is poised for drastic consolidation amid a fierce competitive landscape and volatile economic times in which large customers putting the brakes on spending.

In short, it’s a sad day for Nortel and Canada’s high-tech landscape.

If you read between the lines of the press release and listen closely to the conference call earlier day, you’ll appreciate why CEO Mike Zafirovski describes it as a “pivotal” moment for Nortel, adding that “We clearly understand the status quo is not an option for Nortel”.

The most significant message is Nortel has officially - and finally - decided it can’t be all things to all people. It can no longer remain competitive and viable by developing a broad technology portfolio that tries to meet the needs of a wide variety of carrier and enterprise customers.

In the end, Nortel will be a much smaller company. That is, if Nortel remains a standalone entity.

“There is a challenge in being highly relevant in multiple areas of business,” Zafirovski said during the conference call. “We are realistic in today’s environment with our blanace sheet that as much as a number of us believe we can be successful in various segments, the view is that we will be very advantageous to take some decisions and focus on fewer areas.”

One of the key questions involving the sales of the Metro Ethernet Network business is who will acquire it and what they might be willing to pay - a key consideration given Nortel is looking for the deal to strengthen its balance sheet.

UBS analyst Nikos Theodosopoulos hit the nail on the head when he asked this question:

“The logical buyers in the market are also suffering from similar macro issues and it could cause limited amount of interested parties to buy it given the desire to maintain cash. Have you seen interest expressed recently in that business by motivated buyers willing to pay cah for this business? Or are you entertaining the thought process that it is a valuable asset and buyers will emerge?”

Zafirovski’s responded by saying:

“We will not provide details of context in terms of discussions. We have gone through broad level dicusisons internally and with the board. We have used an investment banker from the outside, and gone thorugh varoius options in respect to growth and opportunities to monetize.”

More: Tech Trader Daily has more details as does All About Nortel and Between the Lines.

Technorati Tags: Mike Zafirovski, Nortel

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Is the Pay Phone Dead?

Anyone used a pay telephone recently? If you said “no”, you’re probably not alone.

Once a telecom staple and a high-profile part of the urban landscape, pay phones are quickly disappearing as wireless devices become increasingly popular. In Finland where nearly everyone has a wireless phone, the pay phone is slated to disappear next month.

You won’t see many tears once the pay phone goes the way of the dinosaur but they have served us well since being launched in 1889 in Hartford, Conn. Before wireless devices became all the rage, a modest dime was all you needed to use a pay phone - although the cost has jumped to a scandalous $0.50 in Ontario and Quebec.

There is, however, hope that the pay phone - or, at least, the pay phone booth - could have some life left. These booths could be turned into Internet/e-mail access depots using Wi-Fi, which would be convenient for people without mobile Web access who want to access their e-mail, blog or send someone a photo.

For more, check out this Toronto Star story.

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Mobile Skype..Finally!

Skype is terrific - a free or low-cost tool to make long-distance phone calls. More than 100 million registered users can’t be wrong, right? One of Skype’s few Achilles Heels is the difficulty using it on a wireless device, which would be terrific given how expensive it can be to make a long-distance call on wirelessly. There is , however, an answer to the mobile Skype dilemma with the official launch today of Mobivix, a global calling service that which, among other things lets you make unlimited and free Skype calls and free global mobile calls between Mobivox users. I’ve been using the Montreal-based company’s service for about a week, and I love it. Using some pretty terrific voice recognition software, Mobivox has proven its value just by allowing me to call other Skype users. I like it so much, I’d pay for premium services, and I don’t offer that admission too often these days. By the way, Mobivox is dead easy to use and doesn’t involve a software download. All you do is register for the service online, and access it using a local number in more than 20 countries. For more on Mobivox, which has received venture financing from BrightSpark and Skypoint, check out GigaOm.

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We’re Talking Tech

The week that was in the world of technology from Mark Evans and Kevin Restivo (that’s us, and here’s our Talking Tech podcast). There was lots to talk to about on the telecom front as Nortel unveiled plans to lay off another 2,900 employees to slash operating costs by $400-million a year, while Alcatel-Lucent (aka Lucatel or Alcent) said it plans to chop 12,500 positions in the wake of their union last year.

While the music industry tried to get its head around Steve Jobs’ Thoughts on Music marketing exercise (let’s turf DRM but Apple ain’t going to lead the charge), EMI mused publicly (or at least through the Wall Street Journal) about releasing all its music without DRM protection. What a novel idea to let consumers do what they want with the music they purchase!

Finally, Circuit City plans to close 62 The Source stores in Canada. If this doesn’t strike you as news, then you’re clearly not one of those geeks who wander into The Source (formerly known as Radio Shack) looking for a nine-pin adaptor to connect your clock radio to your PC…or something like that.

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Nortel Sells UMTS Unit

Nortel has agreed to sell its UMTS unit to - surprise, surprise - Alcatel for $320-million. It was only a matter of time before Nortel sold the money-losing business, and Alcatel seemed to be the most logical buyer. While Nortel can certainly use the $320-million, it is below the expectations of analysts, who were looking for about $500-million. Nortel held a conference call today at 9 a.m. to provide an “update on advances to the execution of its business plan”. According to analysts, Nortel's UMTS access business was losing about $200-million a year on sales of $400-million to $500-million. No wonder Nortel wanted out so badly. With UMTS out of the way, Nortel CEO Mike Zafirovski can now focus on other parts of the business that don't meet his 20% market share benchmark. At the end of the day, Nortel will be a smaller player but, hopefully, profitable.
Update: For more views on Nortel, check out All Nortel, All the Time.

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Cisco's VOD Play

Now that Cisco is sexy again (stellar fourth-quarter results, strong growth projections for fiscal 2007, the savvy acquisition of Scientific-Atlanta), tech/TV watchers should pay attention to its latest acquisition: the $92-million purchase of Arroyo Video Solutions, which makes software to help cablecos and carriers deliver video-on-demand services. The acquisition is the latest in a string of video-related deals that Cisco has made in recent years (perhaps Linksys could be included given it expand video within the home) to reposition itself at a time when many of its rivals (Nortel, etc.) are scrambling to figure out where they want to be and what they will look like in the wake of fierce competition. Cisco, meanwhile, is far ahead of the pack with a strategy that may become CEO John Chamber's legacy. Watch this space, watch this company. For more, check out GigaOm.

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Verizon Pushes Forward With FTTH

The New York Times has an enlightening story today looking at how Verizon plans to spend $20-billion to deliver fiber-optic connectivity to residential households. Why? Well, Verizon believes it has no choice if it wants to deliver the same kind of bandwidth-hungry services (high-definition television, video-on-demand, etc.) as cable rivals such as Comcast and Time-Warner. It's a huge investment and a strategic gamble but many carriers have no choice if they want to compete on a level playing field with their cable rivals, which have been happily signing up hundreds of thousands of new home phone customers from carriers in recent years. It is interesting that while Verizon aggressively pushes forward with fiber-to-the-home, Canadian carriers Bell Canada and Telus Corp. are betting on fiber-to-the-node This means they are pushing fiber close to households, and then hoping compression technology can give the big, fat pipe over the “last mile”. Will this strategy pay off? Well, only time will tell but the strong growth of Canadian cablecos such as Rogers, Videotron and Shaw recently is a troubling development for Bell and Telus. One thing I do find fascinating about the carrier-cable battle is how the cable industry has used CableLabs to support its efforts. For those unfamiliar with CableLabs, it's a non-profit R&D consortium that develops innovative products and standards for its members. You would think the carriers would have - or should have - something similar to effectively fight back. Instead, the carriers rely on cash-strapped telecom equipment suppliers for new products and services, while arguably not spending nearly enough on their own R&D. For more on FTTH, check out Information Week, which writes about the technology's strong growth, albeit from a small base.

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JDS' Jozef Straus Back on the Scene

Jozef Straus, who became a poster boy during the telecom boom for the rise (and fall) of JDS Uniphase, has popped back into the telecom spotlight as a strategic advisor to Enablence Technologies Inc. The beret-wearing Straus has kept a low profile since he retired in 2003 with US$150-million - most of it through exercising options when JDS was riding high. Meanwhile, JDS has gone through some tough times: the stock crumbled, sales tumbled and the fiber-optic company's operations in Ottawa shrank from more than 10,000 workers to a few hundred. Enablence is a start-up developing a chip that will reside inside an optical modem to provide high-speed connectivity of 1.2Gbps to households. My story on Straus and Enablence in today's Financial Post can be found here.

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Digium Raises $13.8M

Digium CEO Mark Spencer has spent a lot of time over the past few years politely turning aside the advances of VCs but he has finally caved in by taking $13.8-million from Matrix Partners. For open-source supporters, it's another sign the “movement” has gone legit. Of course, Red Hat buying JBoss for $420-million earlier this year was a pretty good sign that open source was entering the mainstream. So why did Spencer, who I once described as the Linus Torvalds of IP-PBX, taking the cash? Well, it's not exactly clear because he says Digium, which oversees development of Asterisk and sells related hardware and services, doesn't really need it. In talking with Spencer, it sounds like he's aware of the growing competition from small and larger rivals, and wants to make sure Digium has the cash it needs to strategically respond. “This is really about trying to make sure we do the right things going forward,” he said. “When you start out, there is a lot of room when you are making a new industry to make some mistakes and get away with it. As you get farther along and get people on your tail and paying attention to what you are doing, you have a lot less room, and we need to make sure we preserve a lot of the things we have done that are good.”  Spencer said the deal with Matrix, which financed JBoss, is not a traditional VC arrangement. While declining to provide a lot of details, he said it “preserves the spirit of the company and leave the company in control” - nice terms if you can get them. Of course, Digium had some clout given it's been profitable since 2002 and growing revenue by 100% a year.
Note: For more, check Red Herring and BusinessWeek.

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Redback's Aggressive Growth Plans

The telecom equipment market is under siege - at least in this part of the world where Nortel is trying to slowly restructuring itself back to health. So it is seems, well, strange to hear Redback Networks's ambitious plans to double its workforce to 1,200 from 600 over the next year. In an interview, Mimi Gigoux, who heads up worldwide human resources for Redback, said the company is looking to hire in Canada and the U.S., rather than going off-shore to low-cost regions such as China and India. So what's behind the bullish hiring plans? Redback believes the “explosion” of Web-based services such as IP-TV, VOD and VoIP means huge demand for its edge-routers - a market where the competition includes heavyweights such as Cisco, Juniper and Alcatel. An interesting comment by Redback is their belief the telecolm equipment market is dividing itself between the large players, who are becoming system integrators, and smaller, niche players focused on specific types of technologies. Investors appear to have not picked up on Redback's optimism as the stock has dropped 40% in the past three months.
Update: Speaking of bullish, Cisco CEO John Chambers provided an enthusiastic outlook for the company's fiscal 2007 prospects yesterday with an expectation of 15% to 20% revenue growth. “We are gaining market share against nearly all
our peers in the service provider segment,” he said during a conference call after Cisco posted better than expected fiscal fourth-quarter results.

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