Nortel challengers may be interested in buying pieces of company, analysts say

Nortel Networks Corp. could get bypassed by the wireless industry as officials attempt to restructure the ailing company through bankruptcy, according to officials with a firm that advises carriers.
Officials with Pace Harmon said keeping business in the wireless industry will be a challenge for Nortel. The advisory firm has been in business since 2003 and helps carriers make operational improvements to their wireless network deployments.
“Nortel has lost considerable market share,” said Shaun Cohen, a principal with Pace Harmon. “I’m not sure they will be able to recover to what they are right now. Carriers are going to start thinking about how to replace them.
“Nortel could come out of bankruptcy without a wireless division.”
However, an analysis of Nortel’s bankruptcy by Ovum is less harsh. Analysts for the global advisory and consulting firm believe Nortel’s bankruptcy filing enables radical change by the company. However, analysts say that competitors may benefit from Nortel’s restructuring and some companies – particularly L.M. Ericsson and Nokia Siemens Networks – may be interested in acquiring divisions of the company in the future.
Since 2005, officials at Nortel have been trying to transform the Canadian telecommunications giant. The company’s financial distress was apparent when the company announced third-quarter results last fall. Since then, with losses of $3.4 billion, Nortel’s credit ratings have been downgraded by numerous rating services and its stock has been in steady decline.
The New York Stock Exchange Regulation Inc. has notified Nortel it has suspended the listing of its common shares on the exchange. The NYSE took the action after the company filed for bankruptcy in Canada, United States and Europe on Jan. 14. Regulations allow the NYSE to suspend or de-list shares of companies that file for bankruptcy.
Nortel officials say the current economic climate, high debt and expensive cost structure forced the company to seek the legal protection afforded by bankruptcy.
Bankruptcy timing not optimum
Tom Burson, a Pace Harmon associate, said the number of vendors in good economic standing is shrinking for carriers. For its customers, Pace Harmon has placed Nortel in its group of recommended companies but that could change since the company has filed for bankruptcy.
Carriers of late also have not been that interested doing business with the company.
“This didn’t come out of the blue,” Burson said. “Carriers have been shying away from Nortel.”
Nortel is losing talented workers and 4G technology is in the developmental stages.
“This is a bad time for a company to reorganize,” Burson said. “There will be some large deals they will miss.”
LTE may draw suitors
However, Ovum analysts Dana Cooperson and Matt Walker said in a recent report that Nortel’s focus on LTE could be attractive to another player, including Alcatel-Lucent, NEC and ZTE Corp.
Nortel is working hard to develop a strong LTE ecosystem with partners that include LG Electronics and LG Nortel, according to the report. Nortel is also demonstrating LTE in trials with Verizon Wireless and Germany’s T-Mobile. The company expects some commercial launches this year.
The report also says that the “new Nortel” may be unrecognizable after it emerges from bankruptcy.
“By entering bankruptcy protection, Nortel’s fate will now be largely determined by its creditors and the courts,” according to the report. “Hence the restructuring ahead will be much more brutal and less under Nortel’s control: product lines, technologies, partnerships, divisions, and even customers will be candidates for shutdown or sale to the highest bidder.”
Ovum notes Nortel’s enterprise and Metro-Ethernet Networks division and its equipment product line may be attractive to other companies.
For companies competing with Cisco Systems Inc., Nortel’s enterprise and Ethernet businesses could be considered by Juniper Networks, Tellabs, Inc., and Ciena Corp., according to the report. Ericsson and Nokia Siemens Network also may be interested in filling in gaps in their wireline portfolios with Nortel’s equipment product line.
Competitors will also pounce on Nortel’s filing.
“They are now in a strong position to remind customers that Nortel can no longer give assurances of continued development of any specific products, which will surely impede Nortel’s ability to bring in business,” according to Ovum.
Nortel is also an example of the current economic climate.
“The harsh market will expose companies with ailing balance sheets and put their survivability at risk,” according to the report. “Debt restructuring can give struggling companies breathing room to radically change and return in a different form or make their business more attractive for acquisitions.”
Cohen and Burson said they expect other companies to follow the same path as Nortel as this year unfolds, resulting in fewer vendors at the table for carriers to choose from.
“If Nortel is the first to fall and we see another fall, it will make the carrier’s lives more difficult,” Cohen said.