Convergence in action

3 Mar 2005

“If you want a headline summing up Nortel in EMEA in 2005, it really is about three solutions areas: security, mobility and convergence.” That was the key message delivered by Peter Kelly, Nortel’s (pictured) president for enterprise networks EMEA, to the company’s channel partners at its annual partner event, which took place in Berlin last week.

The telecoms equipment maker’s ultimate goal, he said, was to be the leading company in terms of convergence. “We believe that while the voice market, the data market and the optical and wireless markets are all growing at very high rates, the market where they overlap is growing at a phenomenally higher rate. Last year, we actually outgrew many of our competitors in convergence. Certainly in internet protocol [IP] telephony we were the fastest-growing company. You are going to see a different approach to the market around solutions. We are going to ask our partners to come with us.”

For its security strategy Nortel is adopting a layered defence model, according to Shirley O’Sullivan, EMEA leader of security and wireless local area networks (WLAN). “We are looking at security at every end point of the network. We have a very strong business in voice and data, and what we are looking to do is build on our heritage and key areas and go to market with such solutions as secure convergence solutions, secure LAN infrastructure, secure mobility, secure access solutions and so on.” O’Sullivan confirmed that the company’s global security launch would be released in April. This would be the second launch announcement of the year following one on mobility strategy during the first quarter of 2005. O’Sullivan confirmed there would be two further launches: one on convergence during Q3 and one on SME solutions during Q4.

The security theme continued with an announcement at the partner forum by InTechnology, an IT infrastructure solutions provider that it is to create a new network solutions division to develop secure networking solutions using Nortel’s portfolio. “This is a key partnership for us,” said O’Sullivan. “While we have gone to market with traditional voice and data partnerships what we are hoping to achieve with InTechnology is a very focused and specific drive into the security market and bring security into everything we do.”

The company would not simply be going to market with point products, she said. “What we are doing is taking a holistic approach to security and working with partners so that we don’t just sell as firewall. But what we are looking at doing is bringing in a security strategy into enterprise and carrier organisations.

“This move will allow us to provide network infrastructure products from Nortel and allow us to introduce third-party vendors’ products to integrate with Nortel products to deliver an end-to-end solution,” said Mark McHale who will be business development director for the new division.

Another big departure for Nortel in 2005 will be moving back into the SME market. The company has enjoyed considerable success in the enterprise space but is now refocusing on the SME sector with a new PBX product, the BMC 50. “This is an IP-enabled voice/LAN solution that we will bring to the market during the second quarter,” said Judith Gleeson, Nortel’s vice-president of business operations enterprise. “But our strategy is not just about a new product. It is about a new marketing approach, a whole new way of ordering and logistics. It is all about how we sell. It’s not just about traditional resellers.”

The SME market requires a whole new approach, she said, because the companies Nortel will be targeting can be as small as four employees. This space was also very price sensitive. “These companies don’t want to spend money. They only want a product because they have to have it. The new product has all of the capability and application of the products aimed at larger companies but is absolutely price competitive,” she said.

Matthew Ball, an analyst with industry research firm Canalys, views Nortel’s move into the SME space as significant. “The SME segment is the largest segment in EMEA,” he said. “If you look at the split between sub-100 phone line and 100-plus phone line PBXs, the sub-100 space accounts for 60pc of the market.” However, according to Ball, during Q4 of 2004, Nortel’s strength in EMEA was in the 100-plus phone line segment where it was the number two supplier.

Ball shared Gleeson’s view that the SME space in EMEA was very price sensitive and noted that it is dominated by vendors such as Panasonic and Avaya. The challenge for Nortel would be meeting this competition. The good news for the company was that it was enjoying some success in the UK through its partnership with BT such that it now accounted for 13pc of sub-100 phone line shipments.

Gleeson also spoke to reassure partners that might be concerned that Nortel would lose its competitive edge by cutbacks in research and development (R&D). “Our dollar spend on R&D is in fact growing because we are maintaining our percentage spend. As our revenue grows that means more dollars. But we are doing it according to a different model. What we are doing is outsourcing some R&D. We all know that areas such as India are highly innovative and resourceful and we do have R&D in those areas.”

Galway’s future as an R&D centre, however, is safe, she said. “R&D in Galway is around our high-end applications and at the end of the day that is where the heart of innovation is.”

Nortel’s recent history has been turbulent, a situation Gleeson acknowledged, but the company is emerging stronger than ever. “It has been a difficult year last year in terms of our financial position and our restatement,” she said. “That is now behind us. In fact Q4 was our highest quarter in five years. But we don’t want that to be a one hit wonder so we want our partners to commit to leading with Nortel.”

By David Stewart