We all know by now that Avaya has won the bid for the purchase of Nortel Enterprise Solutions, which includes all voice enterprise products, data and security products and the CS2100, the replacement for the Meridian SL100. The transaction also includes:
* All global Nortel Enterprise assets
* Shares of Nortel Government Solutions
* DiamondWare, LTD
We now at least have a roadmap for Nortel enterprise users going forward, and the general "fear factor" is over (at least we think).
Avaya's winning bid was $900M in cash, with an additional $15M for employee retention. Together, Avaya and Nortel support the largest installed base of customers and telecommunications infrastructure in the world. Note that the Nortel data roadmap and the CS2100 is a key part of Avaya's acquisition strategy and fills a gap in the Avaya portfolio.
The projected timeline of events looks like this:
The most significant dates above are 1/2/10--transaction officially closes and 2/1/10--product roadmaps announced.
Here is what Avaya is saying to the enterprise community:
* Nortel customers should feel confident they are joining a financially strong company with a healthy supply chain to meet their business needs.
* For data products, the Nortel roadmap and investment plan will be adopted
* Upon the deal's close, continuity will be provided for Nortel customers
* Avaya will utilize the vertical and professional services of both companies to drive realizable value
* Avaya will honor the standard 3-5 year product life cycle support policy
Avaya is also stating that Nortel & Avaya customers will benefit as follows:
* Enhanced product and support service capabilities
* Investment protection through open architecture standards
* Enhanced and increased technology innovation
* Increased expertise and specialization
* Supply chain stabilization
* Compelling evolutionary path for both Avaya and Nortel customer bases
* Minimal customer service disruption
Yet, CIO Magazine published an article on 9/15/09, the day after the Avaya/Nortel announcement, and posted some significant statements/hints of what is about to come. To quote them (and my interpretation of each):
* "Nortel enterprise customers will be able to buy the company's current line of products for 12 to 18 months after Avaya officially takes ownership of Nortel's enterprise division."
--My take: Indirectly this is a statement for end of life for Nortel products
* "Support for Nortel gear will continue throughout that transition, an Avaya spokesperson says."
--My take: They want (and need) to keep the base
* "Because the two companies' products overlap, some analysts think the deal was more about customers than it was technology."
--My take: I totally agree
* "Regardless of the migration path, Avaya says it will honor three- to-five year product support for all customers."
--My take: Yes they should, but do NOT expect any new product releases for Nortel product line, or integration with newer technologies
* "Avaya says it will honor all Nortel's service contracts including those that Verizon claimed in a legal filing would be canceled."
--My take: That's positive
* "Long term Avaya says it will rely on its Aura Session Manager platform to unify customers' Session Initiation Protocol-based communications gear into a single system."
--My take: Expect Aura announcements near term to be the solution to start the migration towards Avaya and away from Nortel products
The above statements are very significant. Just pause for a moment and reread the above. They are market-shifting statements, based on the sheer size of the Nortel base. There are also Avaya cost and corporate ratings at stake. For example:
* We know that Avaya purchased Nortel Enterprise for $900+M
* What you don’t likely know is that there is an estimated $400M-$600M additional transitional and operations costs, as Allan Sulkin reported in this No Jitter blog.
* According to this article in the Ottawa Citizen, after Avaya's successful auction bid, "Standard & Poor's Rating Service warned that deal could increase Avaya debt and create integration problems. It put Avaya debt ratings on a credit watch with negative implications."
* Silver Lake's goal: generate ROI sooner than later
So what's going to happen to Nortel and its enterprise product line, which accounts for 80M phones worldwide? I predict an end to Nortel Enterprise as we know it. In my opinion we are losing one of the "Good Guys" in Telecom.
On the other hand, Avaya may learn from Nortel's successful VAR program and may utilize that expertise. I do not expect Nortel engineering in Canada to be brought over to Avaya. Most likely, Avaya Aura will be introduced to layer on top of Nortel as first step in migration.
Also of note, there are conflicts between Avaya and Nortel cultures, and you can expect the Avaya culture to win out.
The chart below indicates my "bets" for where the Nortel product line will end up post 2/1/10:
Based on other recent discussions, there appears to be interest in keeping the CS1000 over the CS2100 as the platform of choice, based on the possible conflicts with Nortel's central-office based products, which belong to a separate business unit that wasn’t part of the Avaya sale. The CS1000 will possibly have the potential to grow to 10,000 end points and higher. Nortel's Contact Center 7.0 could possibly be manufacturer independent, and could be layered on top of anyone’s hardware platform.
All of these are possible positives in Nortel's favor, but let us not forget who purchased whom: Avaya bought Nortel, and not the other way around. It is up to Avaya to determine which products should "stay" and which ones should "go." My bets are based on similar product lines that conflict and therefore in the end will only have one winner. Those that complement, including either a high end CS1000 or CS2100 and Nortel's data product line, should survive.
All of this is speculation at this juncture. After 2/1/10, the final verdict will appear.
In my opinion, Avaya purchased Nortel for (a) the base (and not the product overall in my opinion), (b) Market share (c) Complementary products, and (d) as an exit strategy for Silver Lake.
Note that this shift is enormous--this is the single largest enterprise base acquisition in history. Avaya/Nortel will now have a commanding lead over Cisco for the #1 market share spot, some say double digits.
To make the purchase even more complex, very little capital is available in the marketplace to the enterprise buyer, and thus we need to focus on ROI and cost savings as part of a strategic deployment. So for Nortel users, focusing short term on ROI and cost savings must be considered in order to facilitate a way to pay for the upgrade/migration. Once any of the products are announced as manufacturer discontinued, enterprise customers only have another 34-36 months before risk increases (spare parts refurbished, maintenance contract support may be an issue, costs may be a major issue).
With regards to capital, a recent straw poll performed during an Information Week Webinar asked the following question: Do you have capital funding available for a possible system upgrade/replacement within the next 24 months? The results are below:
Clearly, there is little capital available--95% stated they had no capital, some capital, or no capital but can reinvest savings towards capital.
Culture Clash
Historically, the cultures of Avaya and Nortel are quite different. Additionally, enterprises that chose Avaya over Nortel (or vice versa) based it on their own favorable responses to a bid and on perceived organizational technical/business "fit."
The chart below indicates, from my perspective, some of the differences in the cultures:
The cultures are significantly different, and I believe Avaya has its work cut out for it integrating the two companies. These cultural differences need to be taken into consideration when looking at Avaya as a possible replacement manufacturer to your Nortel infrastructure.
A second straw poll taken during the same Information Week Webinar asked the following question: If Avaya does purchase Nortel Enterprise, and if Avaya retires Nortel equipment in the next 24 months- what is your opinion? The results are shown below:
A full 61+% of those polled would "Consider alternative solutions, manufacturers--due diligence." Based on competitive offerings and technologies available from competitive manufacturers, expect a series of competitive promotions that should be considered.
History Says...
History of the Telecom market says two significant areas affect risk of product(s) that retire. These two areas include:
* Systems Retirement
* New Applications Available
Systems Retirement
For those systems that are being retired, a significant pattern unfolds. These patterns only give the enterprise owner about another 18-36 months before real risks begin to set in. They include:
* Manufacturer Discontinuance of Systems in Place
--Spare parts are refurbished and are increasingly becoming less available, maintenance contract support may be an issue, costs may be a major issue.
* Capacity Issues with Current Systems and Associated Costs
--Systems at capacity require additional hardware investment, and some increases by as much as 40% of a new system
* Consumer-Driven Capabilities Moving into the Enterprise
--Reach-me-anytime, e-mail, IM/chat, presence, personal directories, all consumer driven technologies, are now available in the commercial space
* No Investment by Telecom Manufacturers in Traditional TDM Voice.
--TDM, for all intents and purposes, is dead
* Systems Age (7 years or more as a baseline)
--A clear indication of the deterioration of support for parts and technicians. Expect manufacturer notices, spare parts unavailability, upgrade unavailability, and fewer trained technicians over time
* Risk of a Multi-Day Outage Increases
--The state of the systems poses greater risk to basic communications services - a single outage could last several days. How would your organization communicate in the event something like this happened? What risk(s) would this pose to the safety of the staff and community?
* Newer systems added onto older system to solve capacity issues
--Creates a more complex maintenance environment.
Newer Applications Available
Below are several state-of-the-art IP applications that the enterprise user may benefit from. Note that all of the applications presented are driven by newer, fully supported VoIP technologies.
* Mobility/Follow Me (voice and data)
* Business Continuity (second or third site)
* Unified Messaging
* Unified Communications
* Integrated LDAP Directory
* E911 (campus)
* Record Threatening Phone calls
* Virtual, Portable office
* Remote Worker
* Centralized Network Management and Security
* Wireless LAN
* Latest IP Telephone Offerings
Developing Your Strategic Plan
So what are enterprise Nortel customers to do? The underlying theme should be "stay in control", aka, "control the vendors and not the vendors control you." This will take an internal plan and executing such to provide for such a transition. The plan's objectives should include the following:
* Managing costs for current Nortel infrastructure--consider costs, savings, managed costs
* Minimize product End of Life and risks to the organization
* Due diligence for best "fit" for organization
* Help facilitate funding for product replacement
* Stay competitive leveraging evolving market technology (which is now available in IP only)
* Transition the organization to VOIP/UC
Your strategic plan involves a specific 13 step process under two major categories: Immediate, and Due Diligence, as follows:
Immediately
1. Immediate Action. Immediately, before February 1, 2010 (new product roadmap), you first need to determine your level of risk, based on grandfathering and end of life issues as outlined earlier. Include all areas - end of life, capacities, system age, fewer trained techs, risk of a multi-day outage, good money after bad.
If you are a current Nortel CS1000 or BCM user, upgrade to the latest version/release. This strategy will buy you some time for continued support and end-of-life purposes, up to 24-36 months for baseline planning purposes. For larger Nortel enterprise environments (1,000-50,000+ end points), this strategy is especially helpful, since such larger multi-site enterprises simply do not have the capital to replace a large infrastructure overnight.
If you are a Meridian TDM environment (Nortel's Meridian Option 11, 21, 51, 61 and 81), obtain crash kits and critical spares, get the system IP-enabled (if available), and get assurances for continued support from your VAR. This strategy will again give you some time to then help develop the necessary strategy and next steps for a possible upgrade or replacement deployment.
Due Diligence
2. Commit to a Strategic Plan. Commit to a Strategic Plan that facilitates a roadmap for moving forward. Outline the steps necessary (you may use these suggested steps in this article). In my opinion, saying you are going to "wait it out and see what Avaya does" is simply not good enough. Every enterprise has risks, and the effects of the Nortel Chapter 11 announcement and now sale to Avaya are industry shifting, affecting 80M enterprise end points worldwide. You will need to take a proactive role in protecting your enterprise and providing a pathway that will (a) maintain your infrastructure safely and avoid major downtime, (b) have a vision for utilizing the newer technologies in the Telecommunications marketplace that are both strategic to your enterprise and that can differentiate you from your competition. Engage the help of industry experts as needed in preparing your strategic plan.
While this strategic plan is an important defensive move to protect your enterprise from the risks of the Nortel situation, the need for such a plan comes at an opportune moment. Be sure that your strategic plan addresses the concerns from the Nortel sale, but also recognizes the many opportunities that are arising in our industry. One of our clients in the healthcare space recently stated that "It's a great time to be in the Telecommunications space over the next several years--all the newer applications are in the voice sector and not in data--we can take advantage of these applications to further our enterprise." Note that this client has a full 15% of their workforce mobile, with no office space necessary for those employees--the mobile technology alone has saved them significant dollars and has been able to help them "shift" their company towards a virtual-working environment.
3. Investigate Avaya Aura and Other-manufacturer "Layering Technology." Investigate Avaya Aura and other-manufacturer "Layering Technology" from Cisco, Interactive Intelligence, Siemens, Mitel, NEC, ShoreTel, Aastra, and others. Reviewing the Avaya Aura offering alone, no matter how attractive the perceived offer, will not compare to taking a pragmatic look at what the market can offer your enterprise through a competitive analysis.
The Avaya Aura story is a strong one, and will provide you a vehicle to help facilitate a transition to the newer Avaya enterprise and begin the transition to an Avaya-based solution. There are, however, other strong offerings, from those manufacturers mentioned above. In fact, the Gartner "Magic Quadrant" now rates some of these manufacturers strong-to-very strong in the Unified Communications space.
4. Look at Avaya Upgrade/Replacement as You Would Another Vendor. When considering Avaya for an upgrade/replacement of your Nortel infrastructure, know that the competitive landscape is just that: competitive. It is to your own advantage to seek out what is available in the marketplace based on the short and long term needs of your enterprise.
You will need to evaluate who the strongest competitors are based on the needs of your own organization: geography, technology, support, costs, interfaces/ease of training, cultural alignment, etc.
You may also want to include a side by side matrix that will provide an analysis on a component, service, and vendor basis. The matrix could be developed and itemized comparing those items which represent current status, business need, and best practice/best of breed options. The matrix would present needs in order of importance and include sufficient justification for level of importance of new technologies available and those relevant to your organization.
5. Consider Silver Lake’s Exit Strategy and How This May/May Not Affect Avaya in The Short and Long Term. Silver Lake, as an equity company, is most interested in generating ROI sooner than later. At some point Silver Lake will likely announce an exit strategy to sell Avaya when the time is right. Jeffry Bartash of Marketwatch stated "The deal could also make it easier for Avaya's owners, private-equity firm Silver Lake Partners LP and TPG Capital LLP, to eventually sell the company." Getting sold is a not a "bad thing" as long as the firm is profitable and can sustain market presence in the short and long term. With such a gargantuan task at hand by Avaya, the jury is out at the moment.
6. Consider Incentives Offered by Avaya and the Competitive Environment. In a way, this is a great time to be a Nortel customer. By doing your due diligence you will see a plethora of competitive offerings that will incentivize a migration from your Nortel infrastructure to an Avaya or competitor's offer--these incentives will be both creative and cost effective. Thoroughly look at each competitor’s offering for technology, costs, services, organization fit and transition from your current to a new robust environment.
7. Perform an Assessment for Possible Replacement. Now is the time to take a hard look at your organization and its needs in light of technologies available in the marketplace and the transition taking place from Nortel to Avaya. An assessment will provide the appropriate analysis and answers you will need as a part of your strategic plan:
* Understand short and long term organizational business, technology, service, and growth needs
* Look at technology that can help transform your organization in short and long term
* Look at organizational and policy and procedure issues tied to transforming technologies (i.e., mobility)
* Assess the current infrastructure for VoIP-readiness
* Include all components for cost budgetary purposes--all IP-PBX/UC components and infrastructure that needs to become VoIP-ready
* Develop a general timeline for possible replacement based on funding
* Look to ways to reduce costs on the carrier side and use these savings to help fund the project (audits, optimizations, carrier procurements--outlined in my No Jitter article earlier this year)
* Look for ways to reduce costs on the administrative and operational side utilizing VoIP/UC. Exploring the ROI and TCO of a solution is critical in today’s economic climate.
* Determine the top 5 competitors that could provide a best "fit" for your organization’s needs
* Review D&B ratings and pull D&B reports for each competitor for solvency purposes
* Investigate all of your Disaster Recovery options and the costs associated with them. VoIP provides some excellent DR options that can help protect your business in the event of a disaster
* Issue an RFI to obtain budgetary costs for management approval.
8. Consider Hosted Services, Managed Services and Creative Leasing Options (When There is Minimal Capital Available). Based on the results of the earlier survey and little to no capital available in the market for projects (95% of the responders), hosted services, managed services, and creative leasing options are of greater interest and getting traction in the market. One of our customers is deploying a feature-rich Call Center environment using the manufacturer’s Call Center product remotely, VoIP-enabled--all for only a term commitment with no major capital required.
Another customer is seriously considering managed services as a result of little capital availability and a strong need to further the institution technically while reducing costs. All indications are that a managed solution will reduce monthly ongoing costs and provide a vehicle for addressing the technology needs of the principals and their staff.
9. Look at Transitional Issues and Plan Accordingly. This includes areas such as physical, timing, economic, organizational, Policy/procedural, and cultural. Some questions you should include are:
* Where will the new servers reside?
* How will the current data cabling environment interface in the new server area?
* How do we extend the demarcation points to the new server area?
* Is the area protected environmentally? Security and access control?
* What is the impact of training and transitioning to a new manufacturer from the user’s perspective?
* Do we begin with a pilot first?
* Do we start with the layering technology prior to moving the entire infrastructure?
10. Document The Plan, Present and Get Buy-In From CxO Management. The plan now needs to be documented in the form of a report and PowerPoint to present to management. Consider company objectives, capital/non-capital monies available, options available, project objectives, risks associated with each, general timeline for implementation, etc.
11. Develop a General Timeline For Approval, Implementation, and Planning Purposes. The timeline should include your market timelines and Avaya announcements; your due diligence; getting the assistance of industry experts; logistics relative to a new migration; use of the newer technologies available that can (a) facilitate your organization’s effectiveness, and (b) differentiate your organization from others; and one-time and ongoing costs.
12. Get Project Funding Short and Long Term. Help provide enough documentation and support to help management leverage the funding needed for a system upgrade or replacement. Note that you can look at the project in phases, i.e., (a) upgrade Nortel to current platform, (b) introduce layering for networking purposes, (c) entire system replacement in phases based on what budgeting will allow.
13. Once Funded, Perform a Systems Procurement (RFP Process). Once funded, perform a Systems Procurement (RFP process) and compare Avaya's new offering with others to get the best "fit" for your organization. We expect Avaya will have one strong solution, but expect others to offer similarly strong solutions--each will need to be evaluated. Your due diligence and a strong, comprehensive RFP will give you the results you will need in determining what services, technologies, and costs are available that will match closest to you and your organizations’ vision and culture.
The strategies provided above can be narrowed down to three distinct areas:
* Stay As Is, Upgrade Within Nortel family
* Expect Avaya Aura Layering
* Do Your Due Diligence
Below is a chart that cites each of these areas, and from my perspective the advantages and disadvantages of each:
Summary and Conclusions
This article sets out to help you take a close look at your Nortel environment and what to do as "next steps" in a transition to a newer, stronger, and more robust environment.
As a part of our practice is focusing on the Nortel transition and due diligence, please feel free to contact me to discuss and brainstorm issues, challenges, opportunities that may arise. We have a good formula to address the client concerns and can discuss those strategies with you.
I welcome your comments as we each seek to protect our own organizations (and our clients) and face the challenges and opportunities that lie ahead for our industry. As one of my clients stated earlier, "it's a great time to be in Telecom." We will need to temper that with capital available and managing risk and exposure to our own organization. We are truly in exciting times.
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 of the Society of Telecommunications Consultants, a national association that requires ethics and objectivity as a prerequisite for membership. Steve can be reached at (845) 496-6677 or via e-mail at [email protected].
