GREG MUMFORD, NORTEL NETWORKS

The future no longer is plastics, but rather packets — at least according to Greg Mumford, chief technology officer of Nortel Networks. Packet-based technologies, coupled with broadband, will allow service providers to offer the much-coveted voice-data-video triple play over a single infrastructure, said Mumford, reducing costs, producing new and better revenue streams, and ensuring security.

“That's when the multimedia experience will take off,” Mumford said.

But envisioning the future is quite different from delivering it, particularly when you lose 60% of your staff, which is exactly what happened to Nortel over the past few years. The equipment vendor recognized in early 2001 that it would have to dramatically reduce costs in the face of sharply declining business. “We were one of the ones that moved the hardest, earliest,” he said.

What Nortel didn't realize at the time was just how deeply it would have to cut into muscle and bone. Its cost reduction program couldn't keep pace with the continuing revenue decline. Consequently, Nortel posted a net loss of $841 million on revenues of $2.9 billion in the first quarter 2002. More reductions were needed. Before Nortel was done, a staff that totaled 95,000 employees at its peak had been reduced to 36,000.

The situation is much better today. Revenues are still declining, to $2.4 billion in first quarter 2003, but Nortel managed to post a $54 million profit. “We have reached a point of stabilization,” Mumford said.

That's not to say Nortel isn't feeling a great deal of pain. “We've released a lot of talent. We put a lot of people who had brought us to where we were out on the street,” Mumford conceded. But Nortel would have figuratively bled out if it hadn't stanched its wounds. Like a surgeon faced with amputating a limb to save the patient's life, Nortel had little choice.

Staff cutbacks the likes of which Nortel endured would have robbed many companies of much, if not all, of their ability to innovate. But Nortel was careful to keep its “innovation engine” alive and well, said Mumford.

“You can take your R&D down and not feel it for a month. But we knew that if you take it down past a certain point, you sacrifice your future for short-term gain,” Mumford said. “We really focused on what the value proposition will be when things start moving forward again. And our core value is innovation.”

Just as it always has been. But just because Nortel continues to innovate doesn't necessarily mean that carriers are going to buy, particularly as capital expenditure budgets continue to decline. Gone are the days when vendors could develop the latest and greatest in the firm and comforting knowledge that carriers would trip over themselves to stay ahead of the technology curve. “You're no longer going to see carriers rip out their legacy infrastructures. We have to be able to help them grow in an evolutionary way,” Mumford said.

To do that, Nortel is trying to work more closely with its customers on their business cases, to help them find the proper balance between viability and innovation. “It's a combination of helping them achieve operating savings and giving them the flexibility to grow.” Mumford said.

And grow they will, chiefly because of the importance of the telecom network.

“The network is very valuable. It has changed the way we work and live,” said Mumford. “If the network were to evolve, it can be even more valuable.”