The new Nortel: Merger with Bay Networks prompts reorganization

Northern Telecom finalized its acquisition of Bay Networks last week by disclosing plans for what the company calls "a new Nortel."

The company has been restructured to incorporate the technology brought aboard with the Bay acquisition. The company will retain the Bay Networks brand as a line of business and has created a new unit called carrier packet networks that draws on Bay resources, as well as previous Aptis and Avici acquisitions (see box).

Nortel has positioned itself as the leader in integrated voice/data solutions, said John Roth, Nortel's vice chairman and CEO.

"Continuing leadership in Bay to serve corporate [enterprise] customers is essential to understand what carriers will have to offer their corporate customers," said Roth. "It's very critical to move capabilities from corporate customers as they invent them into the Nortel portfolio, be it Carrier Packet Networks, Wireless Networks or Carrier Networks."

Dave House, who will remain Bay's top executive as well as becoming president of Nortel, said Bay will focus on switching products, including new Ethernet/frame relay and asynchronous transfer mode lines. "Over 55% of our revenue in the last three quarters is from products that didn't exist 12 months ago," said House. "We see a real trend toward gigabit routing systems in the network center and in corporate networks."

Bill Conner, formerly Enterprise Data Networks president, is now executive vice president of marketing.

The restructuring mirrors the moves Lucent announced earlier in the year, said Mike Arellano, a consultant with Degas Communications Group. "This kind of shift in responsibility internally would have happened anyway," Arellano said. "The message is, 'Let's try to organize in a way that makes sense for ourselves and our customers.'"

Keeping the Bay brand alive isn't such a surprising move either, said DataQuest Senior Analyst Ken Kelly. "People know Bay Networks, its products and their capabilities," he said. "And when you acquire a company of that size and stature, assimilating it into the corporate culture is not an easy thing to do. This gives them time to get acclimated."

MindSpring Enterprises will partner with regional cable operator Knology to offer high-speed Internet access in selected cities in Alabama, Florida, Georgia and South Carolina.

The distribution accord flips the standard business model of pairings such as Comcast and @Home or Time Warner Cable and RoadRunner. In this case, a large Internet service provider with 393,000 users and a presence in 375 locations is buying broadband transport from a multiple services operator with a five-city network.

The fit makes sense on several levels. Knology and MindSpring both are part of ITC Holding Co. And Knology's network, though geographically small, shows technological sophistication. As a two-way hybrid fiber/coax network operating at 750 MHz, it carries 78 channels of analog and 80 of digital programming, as well as local and long-distance phone service and its own 500 kb/s cable Internet access service to 46,000 customers.

"In the markets we're looking at here, there just isn't a viable broadband alternative," said MindSpring Chairman and CEO Charles Brewer.

In Montgomery, Ala., the first city offering MindSpring this fall, Knology passes 80,000 homes and has 26,000 cable customers. Columbus and Augusta, Ga.; Charleston, S.C.; and Panama City, Fla.; will follow. Knology expects to be in 20 southeastern cities by 2005.

It makes sense for the company to wholesale its local loop to MindSpring, said Taylor Nipper, Knology's director of programming and production, he said. "With 3000 current customers in Montgomery alone, they're more apt to convert people to high-speed access than we are to take them away. And then we get them as telephony and cable service customers."

PAC BELL RELEASES DSL DETAILS Pacific Bell announced the availability of ADSL in over 180 communities and a new ADSL/ ISP Partner Program designed to deliver ADSL service to businesses and residential users. ISPs will act as authorized sales representatives for Pacific Bell's ADSL services.

DELAYED AGAIN Tellabs and Ciena have rescheduled their rescheduled Sept. 9 meetings at which shareholders were to vote on the merger of the two companies. They are now shooting for mid-November to give the Securities Exchange Commission time to review the revised merger terms.

U S WEST WINS PHOENIX FRANCHISE U S West late last week won approval for a 15-year cable TV franchise in Phoenix. The telco, which already holds a franchise for the DC Ranch development, will use VDSL to provide bundled voice, video and data service.

Carrier packet networks: Fiber optics, switch-routing, frame relay and ATM switching. Draws from Bay, Aptis and Avici. Headed by Clarence Chandran

Bay Networks: Retains Bay name and incorporates Nortel Enterprise Data Networks. Headed by Dave House

Carrier Networks: Encompasses Nortel's DMS digital switches and other carrier offerings. Headed by Ian Craig

Wireless Networks: Remains unchanged

Enterprise Networks: Remains unchanged