Nortel's liquidation could cripple UC relationship with Microsoft

Nortel's liquidation of its assets could possibly gut the 3-year-old unified communications partnership the company has with Microsoft.

The pair forged a relationship in 2006 that resulted in what they called the Innovative Communications Alliance (ICA), a plan to jointly develop, sell and roll out UC and VoIP technology to corporate customers over a four-year period.

Nortel was bringing to the table its telecom background, middleware product set and install base while Microsoft was taking a software approach to voice anchored by its Office Communications Server (OCS).

The partnership, which has already delivered some tangible product integrations, is slated to end in 2010 and current developments may signal its permanent demise.

“Bankruptcy does not mean going out of business, but Nortel is fighting for its life,” Zeus Kerravala, an analyst with the Yankee Group, told Network World in January.

Nortel's asset liquidation could eliminate from the partnership Nortel's telecom products, including its IP-PBX platform, the Nortel engineers working with Microsoft on jointly developed products, and Nortel Global Services, the consulting arm that provides glue for ICA.

The consequences of such a collapse can be summed up in comments by Nortel CEO Mike Zafirovski at the 2006 partnership unveiling when he called the deal an opportunity to create $1 billion in revenue.

That prediction has not come to fruition, and by 2008 Nortel was reporting a $3.4 million loss and company officials were unwilling to discuss the Microsoft partnership in terms of earnings.

By January 2009, Microsoft would only say it was waiting for more information before it could evaluate the fallout from Nortel's bankruptcy filing. As Nortel was working to liquidate its assets, Craig Schuman, director of business development and strategy for the unified communications group at Microsoft, said: “Both Microsoft and Nortel remain fully committed to delivering customers the best unified communications solutions available. We are not in the position to assess the impact to the ICA until we understand Nortel.s plans for its enterprise division.”

But Nortel's plans are clear now with the company liquidating and hoping to restructure under Chapter 11.

Gone could be its enterprise business, which Zafirovski has said is on the block. Canada's Globe and Mail is reporting that.

Nortel is close to selling the division to Avaya for $500 million. That deal would include the UC equipment that is critical to ICA.

Given the overlap in product sets between the two competitors and the fact that Microsoft has an existing UC partnership with Avaya, such a deal could spell the end of integration work or joint development under ICA. Those efforts might shift to Avaya products depending on what, if any, Nortel products survive the acquisition.

Another blow could come as competitors, including Microsoft, jump at the chance to steal Nortel's VoIP customers, its largest install base.

The final straw could be the sale of Nortel's Global Services. While it has not been mentioned specifically by Zafirovski, observers say it appears Nortel has everything on the table.

As part of the ICA agreement, Nortel's Global Services among other services helps companies set up Microsoft OCS Lighthouse Pilot, which is a test suite of Microsoft UC applications for 100 or more users. The pilot includes OCS voice, conferencing, unified messaging and Active Directory integration.

Nortel's Pilot Program is a 45-day service designed specifically for the OCS Lighthouse pilot. Global Services helps users execute a successful pilot and evaluate the results. It also recommends the next course of action in terms of UC deployment.

Presumably, those steps would include the integration of Nortel and Microsoft technology.

But if Global Services is sold off, those critical hands-on engagements with customers go away, as will the pipeline Microsoft was hoping to establish to Nortel's install base.

Microsoft would lose an important asset given that Nortel claims its Global Services unit works with 83 of the Fortune 100 companies on multi-vendor, multi-technology deployments.

In total, the loss of such assets would be three hard body blows that would leave Nortel without the products, engineers and consultants to hold up its end of the ICA partnership.