Introduction and Current State
Nortel, a true flagship manufacturer in the Telecom industry for years, filed for bankruptcy protection on January 14, 2009. Since that time, several significant events have taken place:
1. Nortel has appointed a Chief Restructuring Officer
2. Nortel announced layoffs of 3,200 employees worldwide in addition to the 1,800 already announced, for a combined 15+% layoff globally
3. Nortel has cut R&D by 29% or $233M and has announced discontinuation of its WiMAX business.
Obviously, these are sweeping changes at Nortel.
On the “normal” side, Nortel:
--Continues to participate in trade shows (expect to see them at VoiceCon Orlando late March, 2009),
--Continues to invest in the VOIP and UC product lines--I understand that Nortel is working on Release 6.0 of the CS1000 VOIP product line,
--Remains committed to maintaining high customer service levels for on-time delivery, network stability, and responsiveness. In Nortel's announcement of 4Q08 results, CEO Mike Zafirovski said that, “key customer performance and quality metrics were also at multi-year highs.”
--Nortel continues to see purchases of upgrades and new systems by the enterprise community, although a downturn in new enterprise sales is widely expected, based on the uncertainty of the situation as Nortel seeks to stabilize and come out of bankruptcy protection (officials say the company is aiming for a mid-year exit).
Nortel at its peak was vying for the #1 Enterprise slot opposite Avaya for several years running. The brand name "Meridian" has become synonymous with Nortel. Nortel reliability in the TDM space has been the de facto standard for other manufacturers in the marketplace.
Nortel is also used to being in a lead position in Central Office and fiber optical networking--Nortel was, for example, the first company to introduce 10Gbps transmission via fiber. Nortel has always been keen on its Evergreen philosophy, providing the ability to upgrade existing TDM equipment to next version or release within the Meridian family or to the CS1000 IP family of products. Finally, few would disagree that Nortel has some of the most customer-centric people available, with a long history of caring and supporting the customer at all levels.
A LOT At Stake
There is a lot at stake, and there are numerous stakeholders in this "game." They include:
* Nortel and its employees
* Nortel VARs
* Multiple manufacturers that have partnered with Nortel in specific niche product lines
* Nortel customers
Each of the above should have their own set of contingencies in place in the event of a worst case scenario--Nortel liquidation. Later in this article, we will present such a contingency plan for Nortel enterprise customers.
We are hoping for the best and that Nortel rides out this financial "storm" and comes out of it as a stronger, viable long term player in telecom. Nortel's installed global base is very significant, with more than 80 million data ports and 80 million voice lines. Many enterprise customers are using Nortel as their mainstay telecom CPE product, or use a service provider with Nortel-installed products in its core network.
The final outcome from Nortel's bankruptcy could be:
* A better, profitable, and whole Nortel with legacy financial burdens behind them, and one which continues to honor all previous engagements,
I think all reading this would hope that this happens, but this of course this is the best case scenario,
* A company with specific divisions and products sold off to other companies (some of this has already begun, as when Nortel agreed to sell its Layer 4-7 business to Radware), with the future of those products unknown.
Typically when one business buys another, the buyer will continue to support the products of the purchased for some time, until such time that the product is "folded" into the new company's own product line (such as the case of Mitel purchasing InterTel),
* A company in liquidation and out of the telecom "picture" altogether
This is the greatest area of risk and worst case scenario--a contingency plan should be created within your organization and put into place to deal with such an outcome.
Developments Likely
In my experience, this is not unlike the case of MCI’s Chapter 11, when the company came out of bankruptcy protection in April, 2004. In the MCI case, if the carrier had gone into Chapter 7 liquidation, it would have likely been taken over by another carrier and would have likely continued "business as usual" under the new carrier banner, similar to some of the recent bank acquisitions. MCI's sales were definitely affected during its Chapter 11 period, and my experience with them during that period was that they were not winning a lot of new business.
The CPE market though, is different, as some technologies such as data CPE use open standards, while traditional TDM telephone systems and even VOIP applications are proprietary and manufacturer-specific. Note that this includes all Nortel Meridian products as well as the Nortel CS1K product lines. The idea of Nortel liquidating could have major ripple effects throughout the industry for both enterprise customers and vendors alike and the stakes go up. It is also difficult to imagine the response and possible fate of service providers that have built their infrastructure using Nortel’s platforms.
In the meantime, some of the short-term effects under Chapter 11 status could involve:
* Employee Loyalty and Longevity--Some of the IP-only manufacturers, I am sure, will be offering attractive packages to Nortel engineers and other valued individuals, though their ability to do this will be constrained by the current weak hiring climate.
* New Systems Sales Eroding--New system sales are expected to diminish during this period, with customer fear factor part of the decision-making process, unless there are specific guarantees from the manufacturer and VARs at the time of bid.
* New Offers on Products from Nortel at Bargain Prices--Is likely to happen.
If you are currently procuring a new VOIP system, Unified Communications, or data network hardware to replace an existing infrastructure (including high density fiber optics platforms), consider the following:
* Ensure the current state of Nortel is part of your consideration in the bid evaluations, and consider the longer term risk associated with such a decision,
* On the other hand, your best offer for a system replacement could come right now; deep discounting was MCI's strategy during their Chapter 11 status.
* Note that telecom voice investments are 6-9 year investments, while data infrastructure investments are commonly 3-4 year investments, and central-office level technologies such as DWDM have longer life cycles, as long as 8-10 years. These time frames need to be taken into account as part of your evaluation.
The Contingency Plan: The Worst Case Scenario
Nortel clearly hopes to emerge from Chapter 11 with as many of its business lines intact as possible. As noted above, some business units have already been sold off, and no one knows at this stage whether the Enterprise Voice unit will be retained post-Chapter 11, or whether it will be sold to another vendor even as the rest of Nortel forges ahead as a carrier-focused company post-bankruptcy.
If Enterprise Voice is retained within Nortel or if it’s sold intact to another vendor, customers will likely be fairly safe, at least for the short-to-medium term. But if Nortel goes into liquidation, all owners of Nortel equipment will be at risk. Based on the worst case liquidation scenario, enterprise customers need to do their due diligence and hope for Nortel’s best, but plan for the worst, so as to minimize any disruption to their own business. If liquidation occurs, those enterprise users (as well as service providers) utilizing Nortel as a key component of their telecommunications infrastructure will only have a short window, in my opinion, of 12-18 months (or sooner), to manage the risk associated with such. Each enterprise user must see the larger picture, i.e., not only evaluate its own risk, but any risk associated with any service providers using Nortel as part of their core infrastructure.
Note that the contingency plan should not deter you from doing business with Nortel as usual during this period. The contingency plan elements presented here are designed around the liquidation option only. However, because in any event Nortel’s ultimate future is unknown, it is prudent for enterprise managers to take the steps described below in the interest of protecting your Nortel-based enterprise operations. Taking these steps will also leave you with an understanding of Nortel products’ role and impact within your enterprise, which will be valuable going forward in any event.
The goal of the contingency plan is:
* Minimize economic loss
* Reduce disruptions to operations
* Ensure organizational stability
* Provide an orderly recovery
* Minimize insurance premiums (contingency plans facilitate business "alarms" and therefore reduce the cost of doing business)
* Reduce reliance on certain key individuals, such as approval by a CxO to proceed--a contingency plan provides budgeting and internal approvals as part of the plan
* Protect the assets of the organization
* Allay some concerns of personnel and customers--personnel and customers feel more comfortable based on a contingency plan in place
* Minimize decision-making if liquidation takes place, i.e., reduce your exposure to making decisions in an unfavorable climate of liquidation--several scenarios can be documented within the contingency plan, and a solution and action within the contingency plan executed on
* Minimize legal liability--contingency plans reduce the risk that your company will have legal problems. Such legal problems could include an enterprise being unable to fulfill its own commitments to customers as a result of failures in a telecom system that could not be properly maintained.
I recommend starting this process now, without waiting to see what happens with Nortel, as a process such as this may take several months, depending on the size of your enterprise.
Your contingency plan should take a holistic look at the network and should include the following steps for presenting to executive level management:
1. Assess Your Current Enterprise Voice and Data Infrastructure.
2. Understand and Review Your Corporate and IT Strategic Plans
3. Determine Your Level of Risk
4. Leverage Any Capital Investment with a Telecom Audit and Network Optimization to Reduce Costs
5. Develop and Execute a Request For Information (RFI)
6. Develop a Budget For the Project
7. Look for Ways to Get Your Environment VOIP-ready
8. Document and Execute the Contingency Plan
9. Develop an Overall Project Plan
Each of these points is detailed below:
1. Assess Your Current Enterprise Voice and Data Infrastructure. If you have not already done so, you need a baseline of your existing infrastructure.
--Inventory your current Nortel equipment and infrastructure. Have ready a complete inventory of all equipment and versions and releases of software.
--Determine if ANY of your infrastructures is manufacturer discontinued. In my opinion, those organizations that have a large Nortel infrastructure are running the highest risk, as support for non-manufacturer supported equipment will erode quickly if Nortel were to liquidate,
--Note that all of Nortel's Meridian Option 11, 21, 51, 61 and 81 (depending on Version and Release) are at risk and at end of life. Also consider any current production enterprise systems in the voice and data spaces,
--Identify areas of risk in your current environment: capacities, manufacturer discontinuance, parts availability, technician knowledge, risk of a multi-day outage. Determine a cost to your organization if there is an extended outage. All systems implemented over 7 years ago should be considered,
--Inventory all touch points associated with your Nortel equipment--including all trunk and station cards, number and types of station equipment, trunking on-net and off-net and circuit numbers, data ports, cabling, etc.
--Document your Wide Area Network (WAN) network infrastructure for converged network integration purposes,
--Document data network components and VOIP-readiness for such--include data switches, routers, existing local closet UPSs, and cabling to support a VOIP environment. Note that all manufacturers are now focusing on the IP-only space and therefore an assessment of all components for VOIP-readiness is in order,
--Assess all local closets for VOIP-readiness. Consider HVAC, cabling/patch panels, POE switches and routers. Note that mid-spans can be an effective replacement for POE switches if switches are QoS-capable but not POE,
--Diagram all sites and network components involved for baseline purposes,
--Identify those sites at most risk based on site and function criticality to your organization
--Include core network equipment (routers, DWDM, CWDM, various optical platforms) you are depending on. Note that such equipment is critical to your enterprise functionality, as it usually handles very heavy core enterprise traffic (e.g., 10 Gbps or Nx10 Gbps). Even if you do not use such equipment, consult with your service provider regarding any Nortel "effect."
2. Understand and Review Your Corporate and IT Strategic Plans--So that you can align any new replacement system technology with these plans, thus taking the replacement from strictly an operational need to one that is strategic. Include assessment of alternate systems via a need assessment of current features and new capabilities,
3. Determine Your Level of Risk--Ask yourself and your organization: How long would you have for support if Nortel were liquidated tomorrow and you depended on vendors with Nortel-related products?
* Immediately:
----No manufacturer technical support on any system issues
----No product enhancements or patches will be available
* Short Term:
----Parts availability will become an issue over time
----Core hardware issues and telephone related issues can become problematic
----No new releases of software will be made available
----Competitors using newer applications from other manufacturers will be at an advantage
----Technicians will no longer be trained on any new releases
* Longer Term:
----Your strategy should be updated and reevaluated.
4. Leverage Any Capital Investment with a Telecom Audit and Network Optimization to Reduce Costs. Note that these actions can be performed in concert with the development of the contingency plan:
* Telecom Audits are an excellent way of obtaining one-time savings by reviewing and correcting billing errors and reducing telecom costs going forward by eliminating circuits no longer in use. Telecom audits can include voice wireline services (voice T-1/PRI and POTS lines), data network circuits and services, long distance and toll free 800 services, cellular and wireless services, vendor/carrier contract compliance, and CPE maintenance contracts. Telecom Audits can also be taken to the “next level” via a Telecom Expense Management (TEM) program--utilizing both software tools and processes to manage costs on an ongoing basis,
* Network Optimizations can manage ongoing Telecom costs through best practices of leveraging available carrier network offerings compared with your existing voice and data networks. Some examples of optimizing the network include:
----Legacy local loop charges replaced with newer lower cost local loops
----Legacy T1s replaced with PRI T1s
----Traffic studies to manage number of T1s and POTS lines at specific sites
----Improving bandwidth on data networks (with forecast of projected voice and video over IP models)
----Combining disparate voice and data networks into one cohesive converged voice/data network solution, which will include prioritization for voice and video traffic on-net. This can eliminate long distance, external audio conference bridging, and BRI video circuits
----Wireless Fixed Mobile Convergence--Leveraging 802.11 networks with dual band cell phones to have cell calls travel on the PBX network while on site or in-house can eliminate cell minutes tied to on-net traffic
----Network Procurement--Within 8-12 months of any voice and data network contract renewal, a formal procurement process systematically can reduce annual operational telecom costs by as much as 30% or more. Note that every 24-30 months, carriers introduce new technologies and are able to manage down costs per mile and per Mb, resulting in lower annual costs to the enterprise user. A new network design and RFP should reflect such.
5. Develop And Execute a Request For Information (RFI) to help facilitate budgeting for a replacement system. The RFI should comprise all possible replacement components, including the IP PBX and components, UPSs, POE switches, routers, cabling necessary, and Unified Communications components. The RFI should contain:
* A high-level specification for each of the components to be considered.
* General incentives and offerings that some competitive vendors could offer for Nortel-specific customers.
* Consider managed services as a possible alternative--Some of the manufacturers (Siemens as one example) are offering strong, non-capitalized managed services, addressing the enterprise’s need for such. Putting all costs under an Operations umbrella since capital appropriations are lean in 2009 could be an answer.
* Creative leasing programs that can complement your financial requirements and provide time to build out and replace the system.
* Determine timing requirements for deployment purposes and number of sites involved with the deployment in the RFI. Will the project take place over a weekend, several months, or even a 24-36 month period, based on the size and timing requirements of your organization?
6. Develop a Budget For the Project--With a balance of capital costs and savings from the telecom audit and network optimization
* Valuate the capital costs involved in a system replacement
* Leverage the savings from the audit and network optimization--and use these savings and areas for cost avoidance in your contingency model
7. Look For Ways to Get Your Environment VOIP-Ready--Which includes all closet requirements as well as hardware elements (IP PBX, station equipment, UC, UPSs, POE switches, routers, cabling) and implement such as a short-term get-ready solution depending on your budgetary requirements,
8. Document and Execute the Contingency Plan
* Include an analysis of costs, benefits, and risks,
* Create a Plan "A"--Maintain Existing System (1-3 year). As part of Plan A, consider the development of relationships with multiple vendors, seek vendor commitments to maintain staff knowledgeable with Nortel, protect internal staff knowledge (as needed), and procure critical spares
* Create a Plan "B"--Migrating to new Platform via a Request For Proposal/RFP and migration to a new system. A detailed RFP with vendor SLAs and creative options can help achieve the project goals you may be seeking.
9. Develop an Overall Project Plan-- Look to develop an overall project schedule of what it would take for a full replacement of the systems to be achieved. Remember, in my opinion the enterprise user will only have a 12-18-month window beyond any liquidation announcement, and this timing should be included in the rollout for such a replacement plan. Engaging the help of industry experts can help you leverage their knowledge and engage their counsel to take an approach that will minimize as much risk as possible as you develop your contingency plan.
Summary and Conclusions
Even though this article delves into the Worst Case Scenario and plans for such, the plan presented is for contingency purposes and should not deter you from doing business with Nortel as usual during this period. The contingency plan elements presented here are designed around the liquidation option only.
In the end, even when loyalty to Nortel and your VAR is high, you still need to protect yourself and your organization. To do nothing and hope for the best is not a viable option, in my opinion.
So let’s hope for the best, but prepare for the worst. In a worst case scenario, with a contingency plan in place, you and your organization will be insulated and business risk minimized. So let’s be proactive, not reactive.
Stephen Leaden is President of Leaden Associates, Inc., an independent Telecommunications and IT consulting firm in business 18 years. Steve is a frequent speaker at VoiceCon and is a writer for NoJitter. Steve is also a principal with TelecomUCTraining.com, a successor to BCR Training which provides independent Telecom training--he teaches two courses: Cost Control of Wired and Wireless Networks, Best Practices and Optimizing Enterprise Networks. Steve is Past President and member of the Society of Telecommunications Consultants, a national Telecommunications association that requires objectivity and professionalism as a prerequisite for membership. Steve can be reached at (845) 496-6677 or via e-mail at [email protected].
