Microsoft/Nortel relationship again under microscope

Nortel's Chapter 11 filing could be the death of several key vendor partnerships

Nortel's Chapter 11 filing could force it into restructuring that could influence many of its noted partnerships such as a unified communications deal with Microsoft.

In November, the two companies said the four-year Innovative Communications Alliance (ICA) formed in 2006 was solid and intact. ICA is a plan to jointly develop, sell and roll out unified communications and VoIP technology to corporate customers.

November's assurances came after Nortel had announced a $US3.4 billion loss. With last week’s filing for Chapter 11 bankruptcy protection in the United States, Canada and Europe, the longevity of the deal is again called into question.

"Bankruptcy does not mean going out of business, but Nortel is fighting for its life," said Zeus Kerravala, an analyst with the Yankee Group.

From the partnership perspective, Kerravala said bankruptcy makes it harder to get things done. "If I am Microsoft and I want to get Nortel to invest in creating a new product is that still a viable option?"

Kerravala also said Nortel's largest install base is its VoIP customers and he predicts the company's competitors will jump at the chance to steal those accounts. "The faster Nortel can touch those customers and help them understand where investments will be the better it will be for Nortel. The next 90 days are critical."

How Nortel reacts could dictate how its partnership with Microsoft evolves.

Microsoft said it is waiting for more information before it can evaluate the fallout. "All ICA offerings are currently available to customers and no changes are planned at this time," said a company spokesperson via email. "We are not in the position to assess the impact of the ICA until we understand Nortel's plans."

The ICA deal is set to expire in 2010 and may do just that before Nortel can emerge from bankruptcy and get going again.

Or the bankruptcy could turn everything upside down depending on what actions a bankruptcy court forces upon Nortel.

Company CEO, Mike Zafirovski, said in a public letter to "Friends of Nortel" that filing for bankruptcy protection in the United States will allow the company to reorganize and undertake a comprehensive business and financial restructuring.

Despite its financial troubles, the company said in a press release that it will continue its day-to-day business as usual.

Zafirovski also said he hoped that as part of the bankruptcy the company would " . . . narrow our strategic focus in an effective and timely manner."

If that is indeed the case, Nortel is likely to salvage what it can of the Microsoft relationship since it provides an entry into the evolving world of unified communications and aligns with Nortel's major user base.

When Nortel signed the deal with Microsoft, Zafirovski said it was an opportunity to create $1 billion in revenue, but two years later Nortel was reporting a $3.4 million loss and company officials were unwilling to discuss the Microsoft partnership in terms of earnings.

Kerravala told Network World in November that Nortel's challenge is to prove not only that it will be around long term but that it can complement the Microsoft platform and be a strategic partner.

That challenge gets tougher with the company in bankruptcy.

But Nortel late last year produced another ICA integration when it introduced Nortel Secure Network Access 2.0, which marries its Secure Network Access Switches 4050 and 4070 and Microsoft's Network Access Protection (NAP), which is technology for verifying that a client desktop is secure before letting it onto a network..

At that time, Ruchi Prasad, vice president and general manager of ICA for Nortel, said, "We are committed to ICA."

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