Nortel Networks' bankruptcy may ultimately doom its strategic unified communications alliance with Microsoft, but the Canadian company still has the potential to remain a viable vendor for enterprises.
Last week, Nortel Networks filed for Chapter 11 bankruptcy protection as part of an effort to restructure itself. The news was hardly a surprise, as Nortel has been losing billions of dollars.
The bankruptcy could doom the company's strategic unified communications (UC) alliance with Microsoft, the Innovative Communications Alliance (ICA). Established in 2006, the ICA is a joint effort at interoperability between Nortel's IP telephony products and Microsoft's flagship UC platform, Office Communications Server (OCS).
Nick Lippis, CEO for consultancy Lippis Enterprises, said the Nortel bankruptcy is a major black eye for Microsoft's UC strategy.
"[Microsoft has] been good at diversifying and bringing other companies into OCS to mitigate against Nortel's bankruptcy," Lippis said. "But the bottom line is that there were significant resources placed into Nortel for ICA, and I doubt that much of that is going to come to fruition."
Microsoft has to move on with its UC strategy independent of Nortel, he said, either by further opening up the OCS development environment to a wider range of vendors or by choosing another company for a strategic partnership.
"It's going to be hard," Lippis said. "There are only three or four other companies out there that really matter – Cisco, Mitel, Siemens and Avaya." He wondered whether Microsoft might get a stiff arm from other IP telephony vendors if the Nortel partnership dies.
Microsoft has made public statements that it will wait to see what happens with Nortel's bankruptcy before it decides what to do with the ICA partnership. The partnership expires in 2010, and many experts think it won't last beyond that.
"If I were to put a number on it, I'd say that there is a 50/50 chance that ICA survives," said Irwin Lazar, principal analyst with Nemertes Research.
In the meantime, questions remain about the future of Nortel. Many experts believe that Nortel will emerge from bankruptcy as a smaller company focused almost exclusively on enterprise IP telephony and UC products. But will the company actually survive in this economy? And should enterprises even take a chance on it?
"If I'm talking to a CIO and he's asking me whether or not he should procure Nortel and make them a strategic partner, I would have some reservations until I have a better sense of where they're going," Lazar said. "But if I were an existing customer, I wouldn't be jumping ship and trying to find another vendor. I think Nortel customers should stand pat."
Nortel's enterprise voice business has been pretty strong in recent years, despite the company's overall financial problems, Lazar said.
"My sense is that they have a very competitive solution," he said. "From a price-performance perspective, they're definitely leading-class products."
Indeed, many customers have flourished with Nortel's IP telephony products, and they are now looking to expand into full UC deployments. According to a summer survey, 78% of existing Nortel customers are planning to deploy UC within two years. The survey of 800 Nortel customers was conducted by the International Nortel Networks Users Association.
"My sense is that [Nortel] does have a very competitive unified communications solution," Lazar said. "It's every bit as competitive as anything else on the market. But in the long term, it's going to be difficult. There is so much uncertainty around what will happen if they restructure. My bet is that their voice and unified communications business will emerge from this bankruptcy fairly unscathed."
Lippis was less sanguine about Nortel's chances.
"I think Nortel is the Lehman Brothers of the communications industry," Lippis said. "The bottom line is that there is a major trust factor that has been violated, so what I've been seeing across a lot of Nortel customers is kind of getting over the shock, and now it's into accelerated transition planning, and I think they're going to have a really hard time."
Let us know what you think about the story; email: Shamus McGillicuddy, News Editor