Nortel seeking quick Ch. 11 exit, keeping customers

Lowe identified the carrier VoIP business as another promising unit that while not big today could grow into a major business for Nortel. And while Nortel had originally planned to divest its metro Ethernet division, it is still one of its strongest sales generators, bringing in more than $1 billion in revenue in the first nine months of last year.

Even if Nortel identifies prize businesses in its reorganization plan, it doesn’t mean necessarily it will get to keep them. Any plan will have to be approved by its creditor committee, which may stipulate that Nortel sell off some valuable assets. Despite the down economy, Nortel’s competitors may bid heavily for some of its key business, according to Ovum. Its 4G business may be particularly attractive to Alcatel-Lucent or Asian vendors NEC and ZTE. Nortel’s metro Ethernet unit and its 40G/100G optical product lines would also garner significant interest.

Whatever the final plan will be, Nortel must execute it quickly, Lowe said. While Nortel has been in bankruptcy protection for less than a month, the vendor has been in a race to assure its customers it will not only emerge from Chapter 11 but continue to support products and rollouts and even seek new contracts while under creditor protection. Some customers are easier to convince than others , Lowe acknowledged. Nortel’s competitors are circling, looking to poach key contracts, but Lowe said that the majority of Nortel’s customers are willing to give the vendor the benefit of the doubt , waiting for the restructuring plan to emerge.

So far Nortel’s North American customers have been receptive to its plans, Lowe said. In Europe though, where there isn’t much difference between Chapter 11 bankruptcy protection and Chapter 7 bankruptcy, there’s more resistance. “In Europe the first reaction to the ‘b’ word is very, very bad,” Lowe said. “The more sophisticated customers see it though. … We met with Telefonica, and they get it. We have deals in the hopper, and they want to go forward with them.”

Lowe added that Nortel has managed to close a few deals since filing for bankruptcy, including two deals for carrier VoIP contracts, one in North America and one in Europe. Ultimately though, the longer Nortel stays under the bankruptcy cloud, the harder it will be to keep its customer base stable.

“In our business, you need to be paranoid,” Lowe said. “We have concerns about competitors trying to deposition us. It’s the new business we have to worry about.” Nortel’s existing customers already have investments in Nortel’s equipment and aren’t likely to start from scratch with a new vendor, Lowe said, but new customers, or existing customers deploying new technologies, may take pause. Those customers are waiting for Nortel to tell them what company will ultimately emerge, Lowe said. “Our sales guys are just waiting for that story, but right now we don’t have a story to tell.”