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What Happens to Nortel ES Products After an Acquisition?

If Avaya or another current Nortel competitor, such as Siemens, acquires Nortel Enterprise Solutions (ES) as opposed to a private equity firm, such as MatlinPatterson, or an IT company that's not an enterprise communications system supplier, what are the possible scenarios regarding Nortel products and short term sales strategy?One can assume that a company like Avaya had given some thought to after-acquisition product portfolio and sales issues and held discussions with Nortel before making its "stalking horse" bid in order to smooth the merger transition process, otherwise things could be very messy going forward (as mxyzptlk commented on my earlier post). Some products, especially those that overlap with the acquiring supplier's offerings, cannot be immediately manufacturer discontinued if they offer a logical migration path for a sizable installed base, but can be phased out within a few years; other products can continue to go forward indefinitely if they are unique in the merged product portfolio; a few products may disappear virtually overnight if they are classified as "losers."

When Mitel Networks acquired Inter-Tel, it rather quickly winnowed down the product portfolio, but the Nortel solution set is more diverse and complex: An Avaya or Siemens would have tougher decisions to make.

Looking at the core telephony system products, the most likely to be selected for an accelerated phase-out is the CS 2100. The CS 2100, based on its Communications Server 2000 carrier-class derivative, is the migration solution for Nortel's older generation SL-100 offering. Annual new system sales of the CS 2100 have been very limited the past few years; many very large system customers were once forced into the carrier-based system for port capacity requirements, but can now be supported by today's more expandable enterprise-designed solutions, including Nortel's own CS 1000 (which can support more than 20,000 user stations). Many of the reasons customers had years ago for installing a carrier-class enterprise solution, particularly redundancy and resiliency attributes, can be satisfied by current generation IP telephony system platforms. The largest vertical market segments for the SL-100/CS 2100 solution have been universities and the Department of Defense (DoD), and any company acquiring Nortel ES must be careful to support them and retain them as clients, because of their size and potential revenues stream. Dropping the CS 2100 from the product portfolio won't be an easy decision, but I believe it is one that must eventually be made.

The CS 1000 is safe for the immediate future, because of the necessity to provide existing Meridian 1 customers a very cost effective migration path solution for "purer" IP telephony. Many Nortel customers may also want to install additional systems into their existing CS 1000 networks. Avaya can always network Nortel's systems with its own using the recently announced Aura Session Manager, but there is more to operating and managing a network than support of SIP trunk routing services. I would personally recommend an upgrade to a CS 1000 to any existing Meridian 1 customer, because it is a very competitive product offering and will continue to be supported regardless of the ownership status of Nortel ES for the foreseeable future. Eventually, though, Avaya or Siemens will have to consolidate the product portfolio and standardize on a single software design platform; in a few years most hardware will be Commercial off the Shelf (COTS) equipment and not a major design issue.

Also safe is Nortel's BCM small system platform, because it would significantly enhance the portfolios of either an Avaya (despite the availability of Avaya's Office 500 system) or Siemens (who is relatively weak in the lower end market). It's time, however, to discontinue the aged Norstar hybrid system, although it still sells rather strongly to customers reluctant to implement IP telephony; both Avaya and Siemens have older generation TDM-based solutions sufficient for this market segment. I believe both companies will continue to focus on the higher end market for enterprise communications and devote more limited resources to the small end, particularly customers not ready for IP telephony.

Deciding what to do with Nortel's large portfolio of desktop telephone instruments will prove to be a major headache for either Avaya or Siemens, because a telephone represents the installed system to most station users and the installed equipment is likely still operating without problems or issues. Selling a non-Nortel telephone to current customers will not be a viable option, because a mix of desktop instruments can prove to be confusing and more expensive to support. Deciding what to do with currently available desktop telephone instruments, however, is not a long term issue, because they have likely reached their sales peak as they are gradually being replaced by mobile communications devices, soft clients and lower priced third party SIP-based telephones. Desktop telephone instrument development will be curtailed and some older models, e.g. the first generation of Nortel's 200X IP models, can be discontinued almost immediately. The Meridian digital telephone portfolio should be phased out shortly; there are plenty of used instruments that can be supplier-certified if customers wish to buy the older generation instrument technology.

Nortel's peripheral voice-centric applications solutions are in the most danger of being phased out quickly, particularly contact center and messaging. Neither Avaya nor Siemens are likely to continue product development of the Nortel solutions when they have their own strong offerings for a diverse variety of customer requirements. For Unified Communications, Nortel's MCS 5100 is a strong competitive offering, but Nortel has been obligated to market and sell Microsoft OCS the past few years as an alternative. Avaya may likely need to retain the product for the short term to work behind the CS 1000 to support a variety of features and functions, but Siemens has OpenScape as a very viable standalone solution to offer in its place. Avaya's solution platform, unlike the fully featured OpenScape standalone server solution, is dependent on its proprietary Aura Communications Manager generic software and SIP Enablement Services (SES) offers to support UC capabilities.

The Nortel data networking portfolio of LAN, WLAN and WAN products would nicely round out the Avaya product portfolio for enterprise communications, but overlap with existing Siemens product from earlier acquisitions (Enterasys and Chantry Networks). Both suppliers will have hard decisions to make. If Avaya has the winning bid for Nortel ES it must decide if it wants to compete in the enterprise networking infrastructure market against companies like Cisco and HP, or seek an interested buyer. Their earlier foray into the market with Cajun products acquired during the Lucent Technologies era was less than successful.

John McHugh, Nortel's VP for enterprise data solutions recently gave an interview suggesting that Nortel should bring back the Bay Networks brand. He said that "[t]he more independently I can run this business and take it back to its roots and make Bay Networks exist again, the more effective and focused we are going to be," and "I would like Nortel to reincarnate Bay Networks." Maybe he can get some financial investors and take it off Avaya's hands. Siemens is already in the market and could winnow down the combined portfolio and retain the strongest solutions, only, for various market segments. Customers can mix and operate data networking products from multiple suppliers more easily than voice-centric solutions.

Whichever enterprise communications system supplier makes the acquisition, merging Nortel ES offerings into an existing product portfolio will be difficult, on top of merging the organizations, partners and distribution channels. I'm always available to provide my services to whomever needs a consultant with 30 years market experience and a thorough familiarity with all the companies and products involved, and assume they know where to find me if they need me. The Nortel ES situation will at least provide me with something juicy to talk about during my market update conference session at VoiceCon San Francisco this Fall.