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Optical/IP

Nortel's Summer Abroad

Nortel Networks Corp. (NYSE/Toronto: NT) spent the summer overseas, to judge from contracts announced.

Since June 1, Nortel has issued public statements on 27 major contract awards, of which just three were from companies in North America, -- deals with Cox Communications Inc. (NYSE: COX), MCI (Nasdaq: WCOEQ, MCWEQ), and a couple of domestic wireless carriers (see MCI Vouches for Nortel's VOIP, Cox Chooses Nortel and Nuera, and Nortel Cuts Q2 Losses).

The transglobal trend isn't new for Nortel. In its last earnings report, the company reported more than 50 percent of new revenue coming from outside North America (see Nortel Still Profitable in 2003). In particular, Nortel execs have repeatedly stressed the opportunity they see coming from the Asia/Pacific region.

Nortel doesn't want to be pigeonholed as having an Asia/Pacific focus, however. Spokeswoman Ann Fuller says the company sees "new growth areas as particularly important," as Nortel "continues to broaden its approach in becoming a truly global company. This includes investing in, and deepening our commitments to, strategic countries around the world, both large and small."

Of the announcements made in June, July, and August of this year, more than half came from Asia/Pacific, including the recently announced agreement for Nortel to supply KT Corp. with VOIP gear (see Nortel's Korean Deployment: How Big?). Five deals were signed with customers in Latin America and the Caribbean; and four in Western Europe.

Table 1: Nortel Announced Contracts, Summer 2003
Date Customer Products
8/27/03 China Netcom Succession
8/20/03 Korea Telecom OPTera Long Haul
8/18/03 Centennial Dominicana (Dominican Republic) Wireless
8/11/03 Telef�nica Group (Brazil) OPTera Metro, Passport
7/30/03 Western Wireless (Dallas) Wireless
7/29/03 China Telecom Shasta, Passport
7/25/03 Asia Pacific Broaband Wireless Wireless
7/22/03 AT&T Wireless, Ericsson Wireless
7/21/03 Cable & Wireless Jamaica Wireless
7/17/03 Bangladesh Telegraph and Telephone Board (BTTB) Digital telephony
7/16/03 Hong Kong Broadband Network Limited Succession
7/10/03 COLT Telecom Group plc (London) OPTera Metro and Long Haul
7/7/03 Taiwan Fixed Network Passport
7/7/03 KPN (Amsterdam) OPTera Metro, Passport
7/2/03 China Railcom Succession
6/27/03 NTT Communications OPTera Metro
6/27/03 Antigua Public Utilities Authority PCS Wireless
6/26/03 Japan Telecom Contivity
6/24/03 Shaanxi Telecom (China) Passport, Shasta
6/24/03 British Telecom OPTera Metro
6/18/03 China Netcom, China Railcom, China Telecom Shasta, Passport
6/17/03 Development Bank of the Philippines Meridian
6/17/03 Orange NL (Netherlands) OPTera Metro and Long Haul
6/16/03 Cox Communications Succession
6/16/03 The Bahamas Telecommunications Company Ltd. Wireless
6/10/03 China Campus Networks of Western Universities Project Passport
6/3/03 MCI Succession, Passport
6/2/03 Midwest Wireless (Minnesota) Wireless
Source: Nortel press releases


Of Nortel's recent contracts, nearly one third are for wireless gear. Nortel also seems to be selling a lot of multimedia equipment with voice capabilities. Indeed, VOIP and softswitching were key to a recent win in China, as reported in our sister publication Boardwatch (see Nortel Wins China VOIP Kit Deal). VOIP gear was also instrumental in winning the MCI deal announced June 3.

In contrast, Nortel's not burning up the road when it comes to long haul. Just two contracts -- the recent win at KT and one with Colt Telecom Group plc (Nasdaq: COLT; London: CTM.L) mention long-haul equipment (see Colt Prefers Nortel).

On the whole, the wins reflect overall trends in the market away from long-haul and toward IP-based multiservice networks. The deals also may point up Nortel's own strengths and weaknesses. Progress over the next couple of quarters will help determine whether the company can continue to rely on overseas business.

Nortel's not alone in ranging the world for business as a domestic slowdown continues. Lucent Technologies Inc.'s (NYSE: LU) summer saw about 25 major contract announcements: 12 from Asia/Pacific; seven from Eastern and Western Europe; three from North America; two from Latin America; and one from the Middle East -- the company's recently announced deal to rebuild Iraq's telecom network (see Bechtel Picks Lucent to Rebuild Iraq).

Like Nortel, Lucent balks at implications that its international focus is new or that it favors Asia/Pacific. Spokeswoman Mary Lou Ambrus says the company continues to focus on expanding services, business partnerships, and government work, and that recent contract announcements reflect the progress of this strategy worldwide.

— Mary Jander, Senior Editor, Light Reading

materialgirl 12/4/2012 | 11:29:23 PM
re: Nortel's Summer Abroad Perhaps the elephant on the coffee table no one is mentioning here is the lack of domestic cap-ex spending relative to other geographies. Are our telecom and power networks headed for the same fate here? What impasse must we overcome to break loose and invest in our future? Or did the Triennial Review just slow summer spending?

Separately, is that Nortel Succession switch IP or ATM packet based? If the core technology is IP, where do they get their high performance engine from? Old Wellfleet technology? Technology developed internally? OEM?
sevenbrooks 12/4/2012 | 11:29:22 PM
re: Nortel's Summer Abroad
Perhaps you haven't noticed but the level of telecom service in Asia-Pacific is not what it is in North America. Even with all this spending it will take many years to build out a basic infrastructure. Now during the buildout the need for equipment capital is high.

So, are the service providers investing in their networks? Yes. They still spend 10s of billions of dollars.

Is this like the height of the bubble? Nope. The number of new networks being built has dropped and we are augmenting existing networks.

Is this a crisis? Sort of. The industry got over-inflated during the bubble. Its a crisis for those who have reacted slowly or not at all.

Will we see a return to the bubble? Not likely. People in Telecom will get back to the business of making quality networks and the hype machines will fall away. Not all of them have done so.

So, Asia-Pacific has spending going on now. Good, the world could use improved communications to that part of the globe. Does this make the US obsolete? Nope. Are DSL take rates here lower than Japan and South Korea? Yep. Of course, they have almost no take rate of cable modems.

seven
rjmcmahon 12/4/2012 | 11:29:22 PM
re: Nortel's Summer Abroad Perhaps the elephant on the coffee table no one is mentioning here is the lack of domestic cap-ex spending relative to other geographies.

King Dubya's said in his speech yesterday to union labor that the US will be spending $30B this year on road construction. There are more cars than drivers and we need more roads? And he told Congress that we need a new energy policy. And he said Corporate CEOs must stop lying and focus on telling the truth.

Makes one wonder sometimes :-(

Are our telecom and power networks headed for the same fate here?

It does seem these fates are becoming intertwined.

What impasse must we overcome to break loose and invest in our future?

Investors desire ROIs. Workers desire paying jobs. Bureaucrats desire security. Seniors desire good health. If we chip at these the Berlin wall may begin to fall.

Or did the Triennial Review just slow summer spending?

It seems to have been a political play by a sad commission that serves career agendas over public interests :-(

Getting the elephant off our coffee table may require a new type of peanuts ;-)
zettabit 12/4/2012 | 11:29:19 PM
re: Nortel's Summer Abroad There is another elephant on the coffee table apart from low CAPEX spending by American carriers.

That other ELEPHANT is the one that shows that Nortel is not short-listing for any of the N. American business that is happening. For example, the few major pending projects out there all have one thing in common; they do not include Nortel as a finalist. These include:

- AT&T ULH project, rumoured to favor Siemens (see http://www.lightreading.com/do...

- MCI overbuild project (see http://www.lightreading.com/do...

- Federal GIGBE project (see http://www.lightreading.com/do....

That leaves the Verizon long-haul RFQ as the only remaining major American long-haul opportunity in the near term. It will be interesting to see if Nortel places on that short list. If not, it will confirm that they are completly losing their market position in North America.
litemyfiber 12/4/2012 | 11:29:09 PM
re: Nortel's Summer Abroad Would be the $1bil Verizon wireless deal announced today! You're just silly...
zettabit 12/4/2012 | 11:29:06 PM
re: Nortel's Summer Abroad Lightmyfiber,

You are hereby formally notified that you are in violation of NITPICKING AND ANAL RETENTION ACT OF 1999, which was passed unanimously by the Zettabit National Assembly. You will be notified shortly of the results of the secret trial, and your resulting sentence. Note that ZETTABIT tribunals are pitiless on people who call ZETTABIT "silly". I feel for you.
litemyfiber 12/4/2012 | 11:29:06 PM
re: Nortel's Summer Abroad zettabit; you wrote:
That other ELEPHANT is the one that shows that Nortel is not short-listing for ANY of the N. American business that is happening. For
example, the few major pending projects out there all have one thing in common; they do not include Nortel as a finalist.

ANY, not just LH

Do you understand the difference?

You're even sillier than I thought...
zettabit 12/4/2012 | 11:29:06 PM
re: Nortel's Summer Abroad Litemyfiber,

Can you explain the relevance of Nortel winning a $1 billion wireless deal to their continuing loss of market share in optical long haul networks in North America?

Do you just not understand technology at all? Or just what is happening to Nortel in the optical long haul segment? Or both?
Metropolitian 12/4/2012 | 11:29:06 PM
re: Nortel's Summer Abroad The Verizon 1 billion deal looks nice on the paper, but very few key details (other than a lot of marketing fluff) have been released. How much of a margin is Nortel making on this deal ?

Knowing first hand, how RBOCs like Verizon and SBC work, I'll bet Nortel really pulled down their pants for this deal. I'll bet Frank Dunn and his croonies setup this deal to raise the value of the ton of cheap options they awarded themselves in October 2002, before they get the boot in the near future.

Even several analysts are not impressed by the deal. See the quote below.

"Lehman Brothers analysts Steve Levy and Tim Luke said the deal does not imply any market share gains and just keeps the company's status quo position.

"We see this as a three-year deal worth about $350 million per year, which is about the level of sales we expect Nortel to generate this year from Verizon Wireless," the analysts said in a note to clients.

"A $1 billion contract is always a positive event, but in this case it is simply not all that incremental, in our view. We maintain our 3 UW ("underweight") rating on NT shares and $2.20 target."

"M"
opticalweenie 12/4/2012 | 11:29:04 PM
re: Nortel's Summer Abroad Zetta,
You are starting to sound like a neocon. What
have you been taking lessons from wolfie, rummy
and cheney? or just dipping into the condi dish!
Weenie
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