Analysts debate Avaya’s plans for Nortel users

Avaya Inc., which has agreed to buy Nortel Networks Corp.’s enterprise assets, will face pressure from the channel to continue supporting both companies’ telephony products, one Canadian analyst predicts, though another industry watcher who owns a Nortel PBX is spooked.

“Nortel channel partners are not going to let Avaya, in the short term, make things redundant because they are going to want that customer support,” said Roberta Fox, president and senior partner of Mount Albert, Ont.-based Fox Group.

Basking Ridge, N.J.-based Avaya, which was spun off from Lucent in 2000, agreed to pay US$915 million for the Nortel business that makes corporate networking products, including switches, routers, phones, private branch exchanges and unified communications. That deal is subject to approval from Industry Canada, which is required under the Investment Canada Act to review all foreign takeovers worth more than US$312 million.

The acquisition agreement has been approved by bankruptcy courts in Canada and the U.S. Nortel has been operating under bankruptcy protection since Jan. 14 and is trying to sell most of its business units.

Avaya has not been in the switch business since it dropped its Cajun product line, but both Nortel and Avaya make unified communications, PBXs, phones and other telephony products.

Fox said in addition to the Nortel data networking products, Avaya really wants the customer relationships.

“The golden gem is the customer base,” she said. “If they declared something redundant within a year, that would be counterproductive.”

But another Canadian analyst is not as optimistic.

“Any Nortel (telephony) customers should be scared,” said Mark Tauschek, lead analyst at London, Ont.-based Info-Tech Research Group, which uses Nortel’s Communications Server 1000 IP PBX. “It scared the hell out of us and we’re starting to look for rip and replace options.”

Tauschek said one reason Avaya wanted to buy the Nortel unit was because Avaya officials decided they needed their own network infrastructure products, now that companies are starting to replace time division multiplexing (TDM) equipment with IP telephony.

“They’re going to junk the Nortel stuff on the IP telephony side,” he speculated.

Though it announced its initial bid two months ago, Avaya has said it’s “too early” to say how it will support both product lines.

Fox said her company recently replaced a 25-year-old TDM product for a customer, which “hadn’t been touched in 10 years” and that the vendor stopped supporting eight years ago.

But she added IP telephony products need more frequent upgrades than TDM equipment because they are server-based. But this does not mean customers with discontinued Nortel equipment are left high and dry.

“You may not be able to buy a new part from Nortel-Avaya but there would be grey market or resale sources,” she said, adding more companies are reselling old products.

Fox predicted Avaya may end up using software from Nortel’s unified communications servers on Avaya hardware.

“If it’s running on a server, who cares what server it is?”

Regardless of what Avaya does, analysts agree there will be significant overlap in the IP telephony/unified communications portfolios of both companies — such as IP PBXs, handsets and call management software. Avaya is the leading revenue market-share vendor in enterprise telephony, according to Dell’Oro Group, while Nortel is No. 4.

“The biggest issue for users is, ‘Show me the [product] road map,'” says Henry Dewing of Forrester Research. “They want to see hardcore product plans and how they are going to actually consolidate product lines.”

Fox speculated if any products are consolidated, it will be those targeted at mid-sized to large corporations.

“It will be interesting to see what portfolio they will keep because it could be either,” she said. “Nortel has thousands and thousands of (small to mid-sized business) customers. I think Avaya will take care of them.”

The deal still requires approval from the federal government.

Industry Minister Tony Clement announced earlier this week he will only allow the deal to go through if Avaya can demonstrate there is a “net benefit” to Canada.

The Investment Canada Act requires Industry Canada to review all acquisitions by foreign firms based in countries belonging to the World Trade Organization if the value is greater than $312 million.

LM Ericsson of Sweden has agreed in July to buy Nortel’s carrier wireless assets for US$1.13 billion, but the government is not reviewing that deal because Nortel appraised the “book value” of those assets at US$149 million.

— With files from Jim Duffy

Would you recommend this article?

Share

Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.


Jim Love, Chief Content Officer, IT World Canada

Featured Download

Related Tech News

Featured Tech Jobs

 

CDN in your inbox

CDN delivers a critical analysis of the competitive landscape detailing both the challenges and opportunities facing solution providers. CDN's email newsletter details the most important news and commentary from the channel.