Nortel taps VoIP to bolster user base, loyalty

In an effort to breathe new life into its withering enterprise presence, Nortel released a slew of promises and VoIP products intended to bolster its user base and credibility among network architects and other IT decision makers.

At its 6,000-member-strong INNUA user conference this week, Nortel found better things to talk about than its ongoing

financial restatement saga and user frustration over discontinued and/or delayed products, focusing instead on new VoIP products and incentive programs.

Recognizing its loyal user base, Nortel has found ample opportunity for VoIP growth right in its own backyard. As many as 70% of its voice customers say they are ready for IP, yet only 6% have fully deployed. As much as 50% say they are still evaluating or have partially deployed VoIP, and most have migrated less than 25% of their voice traffic.

To hear from Nortel, read Nortel Q&A: We're focused on 're-creating a great company'
With an eye on the VoIP prize, the company launched what it calls an "aggressive initiative designed to increase the adoption of IP telephony (IPT) throughout North American enterprises," a program that takes aim at existing and potential customers alike. Called IPT 1-2-3, Nortel's new VoIP package offers network architects the option of migrating IP telephony at a pace that suits their organizations' VoIP deployment plans. The base package includes software, hardware and a handful of IP phones to get a taste of VoIP. From there, network architects can add phones and applications such as unified messaging, fax and voicemail to get in the full effects of a VoIP deployment.

Users can also select from some unusual migration incentive options reminiscent of some fast-food menu offers, such as waived transition feea with the purchase of a two-year contract, a free media card with the purchase of 40 IP phones, or buy one voicemail seat and get one free.

"Our first priority is to get users on the latest software release, but our other objective is to get people using IP," said Diane Schmidt, Nortel's director of marketing for IPT 1-2-3.

Nortel also introduced wireless LAN, Ethernet switching, security and converged voice and data products that take aim at the ripe SMB (small to midsized business) space; and the company promised to end late delivery of products, a problem that has plagued it in recent years and perhaps contributed to its dwindling market share.

"We are going to roll out a lot of products on time – to partners, the channel and users," said Eric Schoch, vice president, North America Marketing, Channels & Distribution.

Although some analysts are bullish on Nortel's show of confidence in securing its place in the VoIP market, the question remains of whether it's too little too late in light of black marks on its ability to prove enterprise viability and leadership.

"I think Nortel is doing remarkably well given the position they are in," said Brian Riggs, an analyst at Current Analysis. He noted that product development is continuing at a decent clip -- for example, the company has already followed up its BCM 50 announcement with this week's launch of the new BCM 200/400 platform.

"[Nortel] recognizes their IP phone portfolio is weak in comparison with competitors and they are actively expanding it," Riggs said. "Where competitors are talking about dual-mode solutions, Nortel is actually delivering one, which was demoed in the booths at the end of the day. And the company has a massive installed base of enterprise customers that are remaining loyal despite Nortel's recent history."

Still, Nortel is haunted by negative issues such as its recent restatements of $1.5 billion in inappropriately reported revenue for the years ended 2003 and 2004.

"The company still faces a credibility challenge which will only be resolved when the flow of financial restatements finally comes to an end and executive leadership turnover is also halted," Riggs said. "These are signs of instability that not only cause customers to pause before committing or re-committing to Nortel products, but it makes it difficult for Nortel to plan and execute on strategic initiatives at both the corporate and product level."

Adding to its financial fiasco, Nortel recently said it would discontinue six data products but has yet to identify the specific lines. This ambiguity, contends Yankee Group vice president Zeus Kerravala, could further erode an already declining user base.

"While Nortel does have a large installed base, it doesn't have much credibility in getting new customers," Kerravala said. "Nortel's loyalty revolves around voice, and their data market share has gotten smaller and smaller."

According to Yankee Group, Nortel's Ethernet switch market share was 10% in 2001 and has slowly dwindled by more than half (4%) in 2005, with most of that market share ceded to Cisco and HP.

"Cisco and HP are two companies that are much larger than Nortel and have more resources to defend their base. Stealing share back from Cisco and HP will be much harder than stealing it from other competitors," he said.

In the voice arena, Nortel has slipped from about 21% in 2003 to 19% in 2004 and to 18% this year. However, in this category, both Cisco and Avaya far outspend Nortel on marketing and advertising, Kerravala said, noting the number-one criteria for customers choosing IPT products today is product familiarity, and Avaya and Cisco have outpaced the industry in this area.

"Nortel's always had good products and decent engineering, but people don't buy products, they buy corporate vision, relationships with the salespeople, etc., and that's where they lack," said Kerravala. "Nortel needs to articulate a clear vision to their enterprise users of where they think the future is going and how they are going to get there and avoid many of the problems of the past."

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