Telephony products phaseout expected in Nortel auction to Avaya

Nortel users may not have to become immediate Avaya converts but should expect some phasing out of redundant telephony products in $915M auction of Enterprise Solutions business.

Nortel users may not have to become immediate Avaya converts but should expect some phasing out of redundant telephony products now that the bankrupt Canadian telecom giant has approved a $915 million bid from Avaya for its Enterprise Solutions business.

Merging the two unified communications (UC) portfolios is bound to have overlaps, but no one is predicting any immediate cuts to product lines on either side. Avaya sought the Nortel business not so much for its product line, according to analysts, but more for access to its customer base.

"They're not going to upset their key constituency," said Henry Dewing, a principal analyst at Forrester Research. "You're throwing out the baby with the bath water if you decide to eliminate the product lines."

Avaya entered the bidding last Friday with a $475 million stalking horse bid, but it had to raise its offer to $900 million plus a $15 million employee retention program in order to hold off other suitors.

U.S. and Canadian courts approved the sale late Wednesday. Officials at both companies expect the deal to be closed by the end of this year, noting the auction still requires government approval and court approvals in France and Israel.

For more information on Nortel's bankruptcy

Nortel bankruptcy: Timeline of a hard fall

"Absolutely, there will be redundancies and they're going to have to deal with that," Dewing said. "But I don't expect to see [Avaya CEO] Kevin Kennedy walk out on the day after the deal closes and say, 'We're no longer going to manufacture X, Y and Z products.' …I think there will be incremental changes."

Maintenance upgrades, gradual phaseouts of Nortel products and "tremendous" incentives to buy Avaya products are more realistic scenarios, said Irwin Lazar, vice president of communications research at Nemertes Research.

"I would suspect that Avaya will provide very attractive options for Nortel's customers to think about migrating to Avaya systems," Lazar said. "But they are constrained by the economy. Companies don't have money to spend on new systems, so Avaya will need to support Nortel systems for a long time. I'd expect most of the cuts would come in project management and development."

Nortel users are confident "the strategy is not going to be rip and replace," said Victor Bohnert, executive director of the International Nortel Networks Users Association.

Insight into the future of product lines is likely coming in "weeks, rather than months," said Bohnert, who has been in talks with Nortel officials.

"The product selection [is] going to be driven by the strength of the solution, rather than brand," he said. "This seems like it's not going to be switching over as many products to Avaya as possible. This is going to be about finding the best enterprise solutions."

Lazar recommended that Nortel users "proactively plan for the end of Nortel product lines."

"I'd expect at least five years of support for Nortel's main product lines," he said. "Look at incentive programs."

Nortel users should talk to VARs about Avaya integration

The Nortel auction may not force any major market shifts immediately, but Nortel users should still work with their channel partners to determine the right move for their enterprises.

"Those organizations that work with VARs [value-added resellers] should really rely on their VARs to walk them through the process," said Vanessa Alvarez, an industry analyst at Frost & Sullivan.

It's unlikely there will be "any immediate threat" to Nortel products, meaning users should use this time to plan, said Zeus Kerravala, a senior vice president at Yankee Group.

"[Users should] do whatever they could to find out either from the VAR or from Avaya directly what stays and what goes because that's an important part of the decision process. I wouldn't make any large purchases right now," he said. "Just stay the course, and as soon as you can, try to find out how these two product lines are going to be integrated."

Nortel users who move on may find UC savings

Now may also be the right time to shop around -- or at least convince Avaya you are.

"Any organization that has either Nortel or Avaya kind of has the cards in their hand for talking the price down for any new upgrade or new platform," Alvarez said. "They're not going to want to lose those customers."

Enterprises in the process of evaluating their UC solutions may also want to look at other vendors, she said.

"There's definitely great solutions out there that are far more advanced and won't have these integration issues because -- let's face it -- it's going to be a challenge," Alvarez said. "Even though they say it's going to be a fast integration, we can see it's going to be as long as a year. "

Let us know what you think about the story; email: Jessica Scarpati, News Writer

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