Nortel Heads South

Nortel Networks Corp. (NYSE/Toronto: NT) announced yesterday that AT&T Latin America has signed a three-year commitment to use Nortel's OPTera Metro and Long Haul DWDM gear in its South American data network.

On the face of it, a palpable hit for Nortel. Looking deeper, though, it's less impressive as an equipment contract than as an indicator of the value Nortel is placing on the DWDM (dense wavelength-division multiplexing) market in Latin America.

Here's why: Spokespeople for AT&T Latin America acknowledge that the contract is part of a larger financing arrangement the carrier has not only with Nortel, but also with Cisco Systems Inc. (Nasdaq: CSCO) and Lucent Technologies Inc. (NYSE: LU).

That arrangement, announced by AT&T Latin America March 29, calls for the three vendors to provide a total of about $300 million to the carrier in a long-term, floating-rate tranche. The deals are pegged to the floating LIBOR (London InterBank Offering Rate).

How much each vendor kicks into that credit facility will depend on how much AT&T Latin America is willing to commit to spending on each vendor's equipment. Neither Nortel nor AT&T Latin America have disclosed the value of their agreement, and Nortel says its reticence is due to "competitive reasons."

The situation is clearly outlined in the carrier's press statement: "As part of the transaction, ATTL [AT&T Latin America] will commit to make equipment purchases from these vendors in proportion to their respective financing commitments." A quid pro quo, in other words.

So far, only Nortel has issued a follow-on announcement about supplying gear to AT&T Latin America. And neither AT&T Latin America nor Nortel will provide details about where, when, and how the Nortel gear is to be built into the carrier's network.

Given this background, Nortel's announcement is mainly interesting as a highlight of activity in the Latin American DWDM market. And it raises the question of whether that market can offer greener pastures as North American telecom spending slows down.

Opinions are mixed. While Nortel already owns a sizeable chunk of the DWDM market worldwide, it can expect to carry that success elsewhere, particularly to markets like Latin America where big buildouts have only recently been undertaken. On the other hand, carriers like AT&T Latin America that are dependent on input from outside vendors may see some fluctuation in funding.

But others are enthusiastic about the Latin American market. Arely Castellon, VP and general manager of Latin America and the Caribbean for Ciena Corp. (Nasdaq: CIEN), says the region provides higher margins for equipment providers.

"Many countries are just now opening up their markets, so competition is increasing, but prices haven't decreased that much just yet," she notes. And she asserts that since many Latin American countries have lacked a solid data infrastructure up to now, there's an opportunity for vendors to get in on ground-floor buildouts.

-- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com
flanker 12/4/2012 | 8:36:58 PM
re: Nortel Heads South
ummm, floating in the financing refers to the fact that the NT-CSCO deal is pegged to LIBOR, which is a floaitng rate.

Steve Saunders 12/4/2012 | 8:36:57 PM
re: Nortel Heads South oh. Thanks. Will fix.

flanker 12/4/2012 | 8:36:57 PM
re: Nortel Heads South
ummm, floating in the financing refers to the fact that the NT-CSCO deal is pegged to LIBOR, which is a floating rate.

melao 12/4/2012 | 8:35:51 PM
re: Nortel Heads South I work in Brazil (as i am brazilian).
And the market here is pretty different from what people may think.
Here the European vendors and carriers dominate the market since the beginning. Because here we use the European standards. The North American vendors are increasing rapidly their share here. Mainly, Cisco, Nortel and Lucent. But those companies are new in here, and the carriers still have the philosophy of state companies. So, they buy from their partners of the past mostly. Those partners are basically Siemens, Alcatel, NEC (which had a huge percentage of the network and now is facing problems) and Marconi.

Just in the end of 99 carriers from North America entered in market here (Worldcom bought Embratel which is the biggest long distace carrier in Brazil).

AT&T is still very small compared to the ones of Telefonica, Telemar, Embratel (Worldcom), Brasil Telecom, and the other ones.

I don't know how the whole Latin American market is, but i guess it's similar.
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