Nortel Networks is expanding its operations in China through a joint venture with one of the country's largest telecommunication equipment makers — a strategic move that enhances its competitive position in the world's fast-growing market.
Nortel, which is struggling to emerge from an accounting scandal, said yesterday it is close to an agreement with state-owned China Putian Corp.
The joint venture, to be called Putian-Nortel Networks Telecommunications Equipment Co., will focus on developing and manufacturing high-speed wireless equipment. Putian will own 51% of the venture, Nortel 49%.
The deal illustrates how such multinational telecom equipment makers as Nortel are anxious to establish relationships in China, which is emerging not only as a fertile market but also a competitive threat as low-cost local manufacturers look for export sales.
“I believe a majority of our competitors a decade from now will be out of Asia,” John Chambers, Cisco Systems Inc.'s chief executive, said during the company's annual meeting last November. “This is a trend that is inevitable.”
It means Western firms must partner or perish as such Chinese players as Putian, UTStarcom Inc. and Huawei Technologies Co. improve their technology and establish more credibility with cost-conscious customers. Shenzen-based Huawei, which has joint ventures with Siemens AG and 3Com Inc., aims to quadruple exports to US$10-billion by 2008.
The Chinese government is supporting export growth by offering vendor-financing and soft loans.
As a result, most of the largest foreign equipment makers — Nortel, Alcatel SA, Cisco and Lucent Technologies Inc. — are moving to ensure a significant presence in China through joint ventures and partnerships to capitalize on sales by Chinese-based suppliers in domestic and exports markets.
“You will see a lot of companies running to get some kind of presence,” said Alan Pritchard, a vice-president with Nortel's wireless division. “We are taking an existing relationship and deepening it. This is a further continuation of Nortel recognizing the market is just exploding, and we need to have a breadth of partnerships.”
The immediate opportunity for foreign telecom suppliers is the domestic market. Spending on telecom equipment is expected to rise to US$45-billion by 2008 from US$29.8-billion in 2004. Sales are being fuelled by demand for wireless and Internet technology as China's telecom infrastructure expands.
Duncan Stewart, a partner with Tera Capital, said the global telecom market's modest growth prospects in 2005 and 2006 hinge on Chinese demand because carriers in Europe and North America have scaled back capital spending to focus on strategic areas that produce a quick return on investment.
“We have to remember China is essentially the growth,” he said. “If you take out China, the rest of the world ain't growing and may be sinking. If China doesn't want [foreign suppliers'] gear anymore, we have a problem.”
Nortel's pursuit of a venture with Putian is logical because wireless technology has accounted for about 60% of capital spending over the past three to five years. China has more than 300 million wireless subscribers and four million new ones are added a month.
Other markets are also experiencing strong growth. The Internet access market will climb to more than 100 million customers this year from 80 million in 2004, while the wireline market is adding three million customers a month.
Mr. Pritchard said joint ventures are a strategic necessity in China. “If you are committed to the marketplace, it's not just a matter of access to low-cost manufacturing. These relationships point to growing diversification of resources where you have centres of excellence around the world.”
Nortel, which has been doing business in China since 1972, already has three joint ventures that employ more than 3,500 people. Its business is led by Bob Mao, president and CEO of Nortel Networks China since 1997.
One of Nortel's biggest foreign rivals in China is Paris-based Alcatel, which created its first joint venture — Shanghai Bell — in 1984. Last year, Alcatel enhanced its foothold by creating a venture with TCL Communication to handle R&D, sales, manufacturing and distribution of wireless devices.
© National Post 2005

After four years at the helm, Michael Powell is reportedly stepping down as chair of the FCC. It has been a tumultuous stint for Powell, the son of Colin Powell, who oversaw a series of massive mergers, the dereglation of many sectors, and the rapid emergence of new technology such as VOIP. Powell's supporters liked that he encouraged competition, even if some of his initiatives were not warmly accepted or instituted.
As far as Internet telephony goes, the 41-year-old Powell made it clear he did not want the FCC to get in the way of the market's growth. This saw the FCC rule last year it had the mandate to regulate the market, rather the individual states. This stance is crucial because it will give a single agency the ability to manage VOIP's evolution from bleeding-edge technology to a mainstream service. Since it will be disruptive from a technological and business perspective, VOIP's future will have to be well managed.
Going forward, it will be interesting to see who replaces Powell. In the wireless media, there are reports the industry favors National Telecommunications & Information Administration director Michael Gallagher because he knows the telecom industry from the inside after a stint at Verizon. The wireless industry is not as keen on FCC commissioner Kevin Martin because he has voted against opening up universal access to carriers.

One of the hot spots for telecom spending over the next few years – at least
in the U.S. – will be fiber-to-the-home technology as carriers such as
Verizon and SBC battle with the cablecos for the digital home. Motorola and
Alcatel are two of the key equipment suppliers in the market. Another player
is Tellabs, which does a lot of FTTH business with Verizon after buying
Advanced Fibre Communications last year.
Perhaps Nortel should take a serious look at buying Tellabs – a move that
would currently cost US$3.5-billion (not taking into account a takeover
premium). This would be a bold move for Nortel given its current accounting
“challenges” but FTTH is a high-growth market, which is more than you can
say for Nortel's optical division. If Bill Owens really wants to make his
mark as Nortel CEO, he will have to do something bold instead of talking
about the threat from Chinese suppliers and the oh-so-exciting opportunities
in the federal and defence markets.

Inter.net Canada Ltd. has launched a new Internet telephony service for the
small and medium business market. Its SME Unlimited Plus, which seems
expensive at $46.95 a month, offers unlimited calls in most large Canadian
cities, 720 minutes of LD in North America, low international rates, and
usual calling features. It strikes me that consumers would be better off
using Vonage or one of Inter.net's cheaper residential services. Do you get
the feeling Inter.net is among the Don Quixotes of the telephony world
trying to buck the idea that VOIP is an inexpensive product?

When it comes to transparency, Nortel has a long way to go. Earlier this week, there was an intriguing development in a class-action lawsuit filed last year by Ontario Teachers' Pension Plan Board and the State of New Jersey against Nortel, which alleges the company made false and misleading statements about its results, which artificially raise the price of its shares.
Teachers has withdrawn a complaint against Nortel directors who were on its audit committee from April 2003 to April 2004. Meanwhile, Nortel has agreed to drop a motion to dismiss the lawsuit. As a result, the lawsuit will move into the discovery stage.
What I do not understand – and what Nortel refuses to explain – is why the motion was droppped. What's in it for them? My guess is Nortel doesn'tt want its directors to be sued so it made a deal with Teachers.
That said, the decision moves the lawsuit forward, which could be bad news for Nortel. My take is Nortel has already decided to sacrifice former senior executives such as Frank Dunn and Doug Beatty. As a result, it has absolutely no qualms about letting a lawsuit focused on these gentlemen to proceed.

While the title of this posting may be tongue in cheek, you can't deny that
Juniper is on a huge roll as strong IP router sales produced better than
expected profits and revenue in the fourth-quarter. A few years ago, the
idea of Nortel acquiring Juniper would have been plausible. Instead, Nortel
squandered billions of dollars on a series of terrible deals (Anyone
remember Qtera, Clarity, Broadband Networks??). Not to suggest Juniper has
any interest in Nortel but Juniper's thriving while Nortel is struggling to
stay relevant. In a recent research report, CIBC World Markets analyst Steve
Kamman suggests Nortel may be interested expanding its IP router portfolio
by partnering or purchasing Redback Networks. Nortel could also acquire
current partner Avici Systems, which is struggling to revive itself with a
new CEO.