The dreaded "B" word

Nortel filed for bankruptcy this week.  Not exactly a big surprise to any of us - even less of one to me.

We were meeting with some of our Nortel contacts last week and in casual conversation they mentioned that bonuses were paid early this year.   Uh oh - the canary had just died! I am an ex-WorldCom-er and in the summer of 2002, we quickly moved from paying people a week in arrears to paying them current, so that when we filed CH11 the following weekend, there would be no employee payroll caught up as "pre-petition" debt.  Ah the joys of being jaded.

But wait - I am the optimist. And yes that even still applies here. While Nortel may be burdened with debt and facing a very tough economic climate, I believe they have acted wisely. Instead of waiting another year and filing bankruptcy with the wolves at the door, they did it now, with $2 Billion (US) in the bank allowing them ample time and latitude to decide what to do next. 

Clearly that will involve the sale or spin-off of some or maybe all of the company, but done in an orderly and probably constructive way - especially for those of us who are their customers and partners. Every leading analyst out there acknowledges the strength of the Nortel product line. The CS2000, our core switching platform, is one the most widely deployed Central Office switches in the U.S. and the world and is at the very heart of the global telecom fabric. The Nortel Enterprise product line - namely the CS1000 - is equally robust and widely deployed, and their work in integrating it with Microsoft's OCS is industry leading.

These product sets are extremely valuable (and of course viable) and all of us who are customers of Nortel and use them will benefit greatly by them being in the hands of a financially stronger Nortel - or even perhaps in the hands of a stronger player who consolidates some of these powerful assets.

Either way - it is the nature of a Chapter 11 filing that "business as usual" continues. More than that, since the carrier and enterprise product lines are in fact the crown jewels of the Nortel product suite and its most valuable assets, it is demonstrably in the best interest of the credit-holders that these assets continue to be managed and enhanced to maximize their ultimate value - either to a re-emerged Nortel or to some potential buyer. So continued support, enhancement and R&D around the CS1K and CS2K suites will be exactly what we see as Nortel works through the ultimate restructuring of its debts.

Bankruptcy isn't fun for anyone - but it also isn't then end of the world as we know it. One needs only to look at the US Airline business to see that. And just because Delta, Northwest and United (to name but a few) filed bankruptcy didn't mean they closed up shop or that people stopped flying them. Quite the contrary - and the same will be true of Nortel.

Perhaps having lived through the experience of a large company filing Bankruptcy and then seeing it ultimately emerge and become part of a much larger entity, with all of its customers and products in tact has steeled me to the "B" word. But I don't view this event as anything more than the prudent use of the business and legal tools at hand to ensure the ultimate survivability of the Nortel service set to the maximum value of all involved. Optimism does not exclude practicality.