The real impact of Avaya/Nortel consolidation

With new entrants such as Wind Mobile, World Roam Mobility Inc., and the consolidation of manufacturers such as Avaya with Nortel, how will we manage, survive and succeed with these new vendor relationships?

We believe that this trend is one of the top issues that will affect and impact us as telecom business channel and customers in Canada.

We will start with the Avaya-Nortel integration first, and comment on the new entrants and their potential impact in the next issue.

Impact of Avaya-Nortel consolidation….Bigger than Y2K for telecom and contact centre

The Avaya purchase of Nortel Enterprise Business Division ($915M + $400-600M in transition costs) is one of the largest acquisitions in the telecom industry and has far reaching effects on the vendors and customers. The combined entity is now the largest telecom/contact centre vendor in the world and has millions of installed customers, with tens of thousands of suppliers in most countries around the world.

We have been actively involved in numerous webinars and briefings this week to hear about the future Avaya-Nortel Product Roadmap, (Nortel products will be referred to as AvayaN in the future).

From our initial analysis, we believe it will have more impact, both positive and negative in the telecom sector and customers than the Y2K era on technology upgrades, changes and spending.

As those of us who were around during Y2K, we remember that there was extensive in-depth analysis of IT, network and telecom environments. Many companies upgraded or replaced major portions of their network and telecom environments, which in turn drove extensive technology change and massive amounts of investments in hardware, software and professional services.

As well, for many companies, disregarding size, this was the last time that most corporations paid that much attention to their technology infrastructure. (For other companies, it was also the first time they paid attention to their technology infrastructure). Much to the dismay of many companies in the ICT industry, it was also the last major era of massive technology investments.

There will be obvious short and long term support, operational and financial considerations that existing Nortel customers will have to consider.

Avaya Product Roadmap Major Messages

Communicate…communicate…communicate – Avaya has developed an extensive communications program involving webinars, teleconferences and web-based virtual conferences, with many strategic and technical documents available. The documents are organized by product portfolio and provide a clear, concise initial roadmap of what products will continue from Nortel and Avaya, the lifespan of products, the approach and even customer transition alternatives.

Editor’s Note: As multi-media technology advocates, we found it refreshing to see that the information was presented in multiple media and available if and when we as customers, analysts and consultants preferred. We take this as a sign of the impact of Cisco resources moving over to Avaya and leading the way to changing how to communicate with customers.

Commitment to support customers for discontinued products – One of our main observations is that the current Nortel products will continue to be available for purchase throughout 2010, with some available for another 12 to 18 months. For those Avaya or Nortel products that were or will be announced as End of Life, Avaya committed to provide six years of support following any End of Sale.

Prime responsibility for service will migrate to VARs/channels – Avaya also took the opportunity to communicate their continued commitment to move to channel delivery for not only products, but also services. This will have an impact, again positive and negative, on both channels and customers.

Warranties move from one year to three months – Avaya announced warranty time periods changes as well as support buying changes; primarily on Nortel practices that will not be moved over to Avaya. Customers and channels will no longer be able to purchase support on a time/material basis, or blocks of time for AvayaN products. Comments on the impact of this change are noted below.

Microsoft – Nortel strategic relationship does not move over to Avaya – The senior leadership gave very little rationale for this particular announcement. We will dig deeper to determine the long-term impact, but from our initial analysis, we believe it will have the most impact on the unified communications product portfolio and may potentially delay product development in the messaging areas of unified communications.

This will again have a positive and negative effect on the industry and customers. The industry will gain increased revenue for customer support. Customers will have to be prepared to invest in support sooner than previously planned, which will incur higher total cost of ownership (TCO), than in the past.

Considerations for End Users

This announcement forces all Avaya and Nortel users to analyze their long term business requirements and their current telecom, network and contact centre infrastructures in order to determine their alternatives and investment requirements for the future. The high level considerations and choices are outlined below.

Many customers will face an increase in upgrade and support/maintenance costs if their environment is not on current Nortel versions or platforms, or the customer is not on a dedicated support contract.

Keep Nortel platform – One of the options is to add on to their current environment for the short term, keeping the Nortel environment, and deal with longer term impact and risk. We don’t believe this is a prudent alternative for any company, particularly with the reduction in the telecom work force over the past few years.

Integrate Nortel-Avaya products – Another option is to integrate their legacy Nortel environment with new Avaya equipment over time, when growth or change is required. This option brings its own associated risks, and just really delays the replacement requirements to the longer term.

Replace Nortel environment – The last main option is to look at other technical and vendor alternatives available for total replacement. This enables clients to identify and develop their future technical requirements, acquisition and vendor alternatives. It also enables the customers to identify and plan for future financial and resource requirements as well as take this as opportunity to move to next-generation product lines such as unified communications and mobility oriented solutions.

All of these choices take time, effort and money, which will be challenging for customers in these stressful economic times, particularly when combined with the general lack of available capital.

Considerations for Telecom Suppliers

VARs, channels partners, carriers and integrators will be impacted from the Avaya-Nortel consolidation in a variety of ways as well.

Nortel suppliers, disregarding size will need to incur the time, effort and cost to have their sales and technical professionals educated and certified in Avaya platforms. They will also need to learn, understand, accept and evolve to be able work within the Avaya channel programs. From our initial discussions with a few suppliers, this channel shift and investment requirement will be substantial.

We believe that some of the smaller Nortel channel partners may decide not to make the shift and will disappear from the market as the product End of Life deadlines approach over the next six to eight years.

Avaya suppliers may also be affected due to the customer expectation that they should understand and be able to support the legacy Nortel products. If they decide to ta

Avaya’s acquisition of Nortel and the effect of this week’s Avaya product roadmap will have a major effect on the telecom industry and its customers throughout the world.

Customers will need to identify their future business and technical requirements, determine their costs and benefits, as well their plan and approach for the short and long term. Doing all of this analysis is complicated, technically challenging and very time consuming.

It is critically important that all Nortel and Avaya customers develop their plans for the future, disregarding size, in order to minimize the short and long term negative impacts to their organization, and more importantly their customers.

Contact Roberta.Fox@FOXGROUP.ca or 905.473.3FOX x 1001 to discuss further.

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