Another Nortel Thought ExperimentAnother Nortel Thought Experiment

What if Nortel had followed Lucent's lead and spun off its enterprise voice division in the early part of this decade?

Mark Evans of All About Nortel also blogs at Seeking Alpha, and today he has a post about Nortel's acquisition of Bay Networks back in the '90s, and what effect that effort to get into data networking had on the company's long-term prospects. I'd like to consider another what-if: What if Nortel had followed Lucent's lead and spun off its enterprise voice division in the early part of this decade?You start with the caveat that, looking at the market today, nobody's assured of success--at least nobody not named Cisco or Microsoft. The question is who's going to be around to compete against them, and the obvious answer is that Avaya's chances are a heck of a lot better than Nortel's.

But what if Nortel Enterprise had been spun out of the carrier-focused parent company, the way Avaya was spun out of Lucent?

Remember, at the time Avaya had a data networking product line, the Cajun switches, which came on board when the company bought Lannet. Eventually Avaya pretty much let the Cajun line wither, opting not to go head-to-head with Cisco in the large number of accounts where that was always going to be a futile effort, and partnering with Extreme, which had a track record of at least some success in the endeavor, for those accounts where there was a possible data play.

Of course, Bay Networks was a larger player than Lannet, and its antecedent Wellfleet was one of the early routing companies, Cisco's main competitor. So Nortel thought they really could give Cisco a run for its money by buying Bay. And they still are putting up a fight, with the latest play being Nortel data gear's purported superiority over Cisco's in terms of energy consumption. But it hasn't made much of a dent, and in fact HP ProCurve, not Nortel, has become the major North American challenger to Cisco.

So what if Nortel had cut its losses with Bay, or alternately, decided simply to spin off the entire enterprise portfolio, voice and data, into an Avaya-like company? If it had happened around the time of the Avaya spinoff, Enterprise-Nortel would have dodged the hit that Main-Nortel took when the financial scandals came out, which in itself would have been a huge factor in positioning Enterprise-Nortel to survive.

Presumably, Nortel-Enterprise might have looked at least as attractive to private equity as Avaya and Siemens did, or it could have continued to soldier on as a public company, as ShoreTel and Aastra are doing--Nortel-Enterprise might suffer in the current climate just like everyone else, but they wouldn't be facing delisting, like Nortel is now. And Nortel-Enterprise could have been in a position to adopt the kind of targeted acquisition strategy that Aastra has embarked on.

At the time Avaya was spun off, people acted like Lucent had unburdened itself of a drag on its potential growth. Turned out the parent company was the drag--for Lucent and Nortel.What if Nortel had followed Lucent's lead and spun off its enterprise voice division in the early part of this decade?