Nortel Says China Boom in Full Bloom

BOSTON -- Nortel Networks Corp. (NYSE/Toronto: NT) executives today whipped out their pom-poms here at a media and analyst day, preaching visions of a sustained telecom growth spurt springing from places like India, Russia -- and especially China.

”Emerging countries could leapfrog [legacy] technology,” said Frank Dunn, Nortel’s president and CEO. “They can skip three or four generations. China, India, and Russian can dramatically change the competitive landscape."

Dunn said the growth of 3G networks and broadband in particular will contribute to the need for more infrastructure, across the globe. “Wideband CDMA is going to put tremendous costs and volume on the network, and the bad news is the networks can’t handle it.”

It's clear that Nortel is counting on China to maintain a steady stream of business, as the North American carriers are still working through significant challenges and a painful industry restructuring (see China Picks Nortel's Shasta Box and China Is Red Hot).

Making some striking observations, Bob Mao, president of Nortel Networks China, said the Chinese government has started a new urbanization model that will fuel telecom growth. According to President Mao, the government plans to build out 200 communities around China’s smaller cities. He says this project is designed to relocate as much as 25 percent of the population, or 300 million people, from rural areas into these new urban centers.

Mao had more of China's mind-boggling numbers: While the population of China is 1.2 billion, it has only 260 million wireline and 380 wireless subscribers. He pointed out that this wireline penetration of about 20 percent in mainland China compares with a close to 100 percent penetration rate in Taiwan. “Between 20 percent and 100 percent there is a lot of room for growth."

”There are easily 100 to 200 million subscribers that will be added before the Olympics [in Beijing, in 2008],” said Mao. “Can you imagine what that means for the telecom infrastructure?”

What else do Nortel executives see driving the telecom market forward? They painted a picture of acclerating deployment of new packet-based technologies:

• Carriers need SIP-based products and multimedia applications to create new services on their packet-based networks, says Greg Mumford, Nortel’s CTO (see Session Controllers Walk the Runway).
• 3G and broadband growth may quickly gobble up the infamous bandwidth glut and is fueling new optical investment in metro POPs, says Brian McFadden, president of optical networks (see Huawei Throws 3G Gauntlet).
• 3G, 3G, 3G. Nortel executives referred back to wireless data services on numerous occasions, pointing out that these networks will require wireless carriers to upgrade their own optical infrastructures, and that the traffic will place increased demand on the global telecom infrastructure.
• VOIP is “real,” according to McFadden (see Nortel Partners on VOIP and Ericsson, Nortel Lead VOIP). “This is the year when carriers invest in VOIP networks because of the packetization of the core.”

Does this all sound too... exuberant? Certainly. Some pointed to Nortel's challenges in migrating to being a "software company," one of the themes stressed by executives here.

"Their one challenge is they are still evolving from a legacy TDM company themselves," says Chris Nicoll, vice president at Current Analysis.

But Nicoll buys the China story, which certainly has helped Nortel's financial improvement in recent quarters.

”That part about populating 200 cities is interesting, because China has the ability to make things happen,” he says. — R. Scott Raynovich, US Editor, Light Reading