Nortel, In Bankruptcy, Keeps Signing Deals

Even though it remains mired in Chapter 11 proceedings, Nortel Networks Corp. (NT) continues to secure equipment deals with companies around the world, from coffee makers and professional services companies to the U.S. military. The latest contract announcement comes from BT Global Services (BT), a division of the U.K. telecom giant that’s struggling almost as much as Nortel itself. BT and Nortel said on May 18 they have renewed a long-standing distribution agreement – BT will resell Nortel’s enterprise equipment and services for another four years.

That news echoed other recent announcements. Professional services firm Deloitte just installed Nortel’s unified communications platform in its Moscow offices. German coffee icon Melitta is using Nortel’s data center products. And government contractor General Dynamics has ordered Nortel’s Assured Services Local Area Network products for McChord Air Force Base in Washington state. Meanwhile, Nortel has named value-added distributor Westcon Group as its go-to-market channel in Thailand, Vietnam and the Philippines.

Each of these arrangements means partners and end users expect to receive Nortel service and support for years to come. And, while the customers praise Nortel’s technology and low costs; noticeably absent is any mention of their faith in Nortel’s viability.

Indeed, how can Nortel, a company that likely will be sold off in pieces rather than emerge from bankruptcy intact, keep forging such long-term commitments? And what kinds of safeguards are placed in into the transactions in case Nortel does fall apart?

Valid, Difficult Questions

“These are valid questions that are difficult for me to answer,” Jamie Moody, a Nortel spokeswoman, told VON. What she could offer is that, while in bankruptcy protection, Nortel is “100 percent bound by terms of any new contract.”

Neither Nortel nor BT nor the other customers have disclosed the terms of their agreements.

It’s important to note that it’s Nortel’s enterprise unit, not its carrier division, that is landing the most deals. (The carrier business did score some wins in the first quarter, however.) Nortel remains one of the top five vendors worldwide in enterprise voice. And even if a competitor such as Alcatel-Lucent (ALU), Siemens Enterprise or Avaya Inc. ends up buying Nortel’s enterprise division, as seems likely, the resulting entity will still be “a valid solution in the market,” said Alan Weckel, director at research firm Dell Oro Group. Even if Nortel’s enterprise unit ends up inside another company, the products themselves likely won’t change, at least in the near future.

That’s why it’s not “that risky” for Nortel users “to continue the relationship, as most of the equipment and roadmap is likely to remain intact, even with new owners,” said Mike Sapien, principal analyst in Ovum’s enterprise practice.