Nokia deal launches Nortel's liquidation sale
800 Canadian jobs saved, but cuts still possible
A deal to sell two Nortel wireless divisions to Nokia Siemens Networks is just the beginning of a complete sell-off of assets, Nortel's senior executive in Ottawa confirmed Monday.
At least one analyst said the liquidation sale signals the sad end of a company that once represented Canada's high-tech might.
"We will be selling all remaining businesses," Samih Elhage, president of Nortel Networks Corp.'s carrier VoIP and application solutions division. "There is a process … in place to allow us to achieve this objective as soon as possible."
He added that the goal is to maximize the company's value to all stakeholders, including creditors, and protect jobs as well as the company's technology and innovations.
Elhage was affirming what Nortel president Mike Zafirovski indicated after his company and Espoo, Finland-based Nokia Siemens Networks announced late Friday that Nokia Siemens has agreed to buy Nortel's profitable CDMA division and its LTE (Long Term Evolution) Access division for $650 million US.
The two divisions make up about 10 per cent of Nortel.
Nortel's piece-by-piece sale represents a complete change of plans from earlier this year, when Zafirovski he wanted to restructure and preserve the telecommunications giant as a stand-alone company.
CDMA and LTE
Nortel remains North America's largest telecom infrastructure and communications provider. Its standard communications technology, called code division multiple access (CDMA), is still the backbone of the networks of many wireless carriers, including BCE Inc., Telus Corp. and SaskTel.
However, CDMA has been less popular worldwide than the competing Global System for Mobile (GSM) communications technology, used by Rogers Wireless and many others. According the CDMA Development Group, there were 455 million CDMA subscribers around the world in the last quarter of 2008.
In October 2008, Bell and Telus agreed to work together to overlay their existing wireless networks with a network using high-speed packet access (HSPA) cellular technology, a version of the GSM standard.
The two companies said the upgrades would pave the way for the transition to adopt fourth-generation, high-speed Long Term Evolution (LTE) wireless technology, in which Nokia Siemens has invested heavily and which is expected to hit the market in 2010.
Tyler Chamberlin, an assistant professor who researches the technology industry at the University of Ottawa's Telfer School of Management, said things seem to be over for a former "great Canadian institution."
"It's a very, very sad day for just about everybody in and around this company," he said Monday, "and a sad day for the country, too. Because despite the challenges of recent years, this was an industry darling and it was our real technology player."
Chamberlin said he thinks Nortel could have survived with some government assistance, as its debt load was not that bad, in light of revenues of $10 billion last year.
He is now concerned about the loss of the significant role that the company played in research and development in Canada.
"But it doesn't seem like the federal government in power either appreciated or were adequately motivated to do something about that."
Chamberlin said that leaves a gap other technology companies such as BlackBerry maker Research In Motion Ltd. haven't filled.
Nortel and Nokia Siemens had been in negotiations since Nortel filed for bankruptcy protection in January, Nokia Siemens executives confirmed Monday at a media conference call.
TSE suspends trading of Nortel stock
The deal prompted the Toronto Stock Exchange to suspend trading of Nortel shares Monday morning.
Nortel and Nokia Siemens had said Friday that 2,500 Nortel employees, mostly in North America, would be transferred to Nokia under the deal.
Nokia Siemens executives said Monday that about a third of those employees are in Canada. The bulk are in Ottawa, where the company has a large campus at which it conducts most of its R&D, but some are also in Toronto, where its corporate headquarters is located.
In Ottawa, about 1,000 employees work on CDMA and LTE, Elhage said. More than half the employees are part of the deal, which does not include Nortel's LTE Core division.
"We really do believe this is the best possible outcome for Canada, for Nortel's wireless customers, and for the associated employees," said Simon Beresford-Wylie, CEO of Nokia Siemens.
"We believe here passionately that this will keep Canada at the forefront of next-generation wireless research and development and importantly maintain jobs in this area."
Meanwhile, he added, the deal represents "great value" for his own company, strengthening its place in the North American marketplace and boosting its own LTE division. It will also provide stability for Nortel's customers, as Nokia Siemens will be taking over their contracts, Beresford-Wylie said.
Those customers include Bell, SaskTel and U.S. Cellular.
Some job cuts possible
Michael Matthews, head of business and strategic development for Nokia Siemens, said the North American employees being transferred to his company represent "a significant majority, if not most, of the people" in Canada and the U.S. working for Nortel units being purchased. That suggests there may be some staff cuts.
However, Matthews also suggested that the LTE division, based largely in Ottawa, has the potential to grow in the future.
About 400 of the current employees affected in the deal are involved in research and development on LTE next-generation wireless technology.
Employees transferred from Nortel will have their years of service count toward their eligibility for benefits under terms and conditions offered by Nokia Siemens. However, the company said it will not take on existing benefits and pensions, which are expected to be settled by Nortel with its creditors.
Nokia Siemens's financing for the deal includes a $300-million loan commitment from Export Development Canada (EDC), Canada's government-owned export credit agency.
Nortel's Elhage said the EDC has specified that Nokia Siemens must commit to maintaining CDMA and EDC "centres of excellence" in Ottawa to receive the money.
Luca Maestri, chief financial officer of Nokia Siemens, said the EDC money was important during the current credit crunch, but not crucial to the deal. Nor were Canada's research funding or tax regimes a major incentive.
"I would say that our decision to hire people in Canada was based on their skill set and their capabilities and very much based on the product and the knowledge that is in Canada," he said. "It wasn't based on tax reasons or any types of subsidies."
Because of Nortel's bankruptcy protection filing, the deal must still be approved by the U.S. Bankruptcy Court and the Ontario Superior Court of Justice, which will hold the necessary hearings by July 30. The deal is expected to close in the third quarter of 2009.
Employees hope for stability
On Monday morning, many of the employees arriving for work at the Carling Avenue campus in Ottawa said the deal was welcome news.
"I'm kind of having a wait-and-see attitude," said one Nortel employee who works in the CDMA area of the wireless unit that is being sold.
He said he didn't want his name used, but he hopes the sale will mean more security and stability in his division.
"It seems like it's a good idea," he said. "I'm hoping it's a good idea."
Mika Vehvilainen, chief operating officer of Nokia Siemens Networks, posted a video on his company's website to welcome and reassure Nortel workers.
"Hopefully, all of you will join us and help us expand our presence in North America where we have some terrific people and great customers, but where we also want to become much bigger and much stronger."
Thomas Timlin, who works in the enterprise unit at Nortel and has been with the company for nine years, said he's not worried about Nortel's workers because their skills will always be in high demand.
'I think we'll be successful'
"You can always be worried about your jobs, but I think the people of Nortel will always compete against other employees in other companies. I think we have a good base of skill sets at Nortel and I think we'll be successful."
In terms of Nortel's future, Timlin said, he thought the sale of the wireless unit was the right thing to do.
"I think it's great. I think it's movement forward for the company. It might stimulate other businesses being sold quicker," he said.
In Nortel's media release, the company said it is still "advancing in its discussions with external parties to sell its other businesses."
If those sales aren't possible, it said, the company will have to restructure.
Shawn Duval, who has worked at Nortel for 12 years and for five years in the wireless division, said that he's glad the deal will save some employees from being tied to the fate of the former communications giant.
Despite employees' upbeat reaction to the news, the University of Ottawa's Chamberlin said the deal and Nortel's move to sell off assets isn't a good thing for employees.
"It means that the situation gets much worse," he said. "At least previously there was a hope that things were going to change or things were going to improve."