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Nortel: What Should Customers Do?

When it comes to the reports about Nortel exploring a possible bankruptcy filing, Nortel management has the fiduciary responsibility to explore all financial and restructuring options in advance of making any decision that will significantly affect their daily business operations. Looking into a bankruptcy filing and its consequences is not the same as filing for it.If I was a customer, any customer, I would assign my doing business with Nortel a higher risk factor, although a bankruptcy filing could result in improved operating conditions (one such scenario).

To recap: The Wall Street Journal reports today that Nortel, in the midst of restructuring, "has sought legal counsel to explore bankruptcy-court protection from creditors in the event that its restructuring plan fails, according to people familiar with the situation." The network equipment vendor recently engaged in a new round of cost-cutting, including the elimination of 1,300 jobs, and it has been looking to sell some assets, including its Metro Ethernet division. Initial efforts to do that so far have failed, though the company reportedly is attempting to renew its efforts to sell the group.

The WSJ story also says Nortel was hoping for some assistance from the Canadian government, but other political turmoil confronting Prime Minister Stephen Harper and opposition to his administration make help seem unlikely.

Nortel is one of the legendary names in the telecom industry (actually, its old identity as Northern Telecom may carry most of the legend), but the last seven years or so have seen the firm decimated by a telecom downturn, shamed by financial scandal, given hope by current CEO Mike Zafirovski, but now driven to the brink of bankruptcy by multiple market and financial factors, just as another telecom industry downturn gets underway.