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Goliath’s Fall

May 15, 2012
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The birthplace of the world’s first smartphone is a one hour drive west from this year’s IMS at the Palais des Congrès de Montréal. In 1998, ten years before Apple unleashed its iPhone or Research in Motion (RIM) of Waterloo, Ontario hit it big with the BlackBerry, a small group of engineers, industrial designers and psychologists at Nortel’s Corporate Design Group in Ottawa developed the “Orbitor.” This handheld device could transform into a pager, voice mailbox, fax machine or wireless phone with the simple touch of a finger or stylus. The company’s R&D group had 80 finished units ready for market with service delivery trials set to begin with one of Europe’s largest cell phone operators. Nortel had leveraged its joint venture in GSM with French company Matra (1992) and four years of internal development to produce a potential game-changing product. This level of market-leading innovation was not a fluke for Nortel’s massive research center and the city known as Silicon Valley north.

Established in 1961, the epicenter of Nortel Networks’ research and development was known as the Carling Campus. With a man-made lake and 11 glass and steel buildings totaling over 2 million square feet connected by underground tunnels, the campus was originally built to house 9000 workers. In addition to the 6700 employees engaged in advanced research and product development, the company employed nearly 2300 employees dedicated to manufacturing, marketing, operations and services. Less than a mile from the Carling site, Nortel’s Technology Supply and Components organization operated its own 500,000 square foot Corkstown facility, home to Nortel Semiconductors, which designed and manufactured custom microchips and application-specific integrated circuits (ASIC); and Nortel Microwave Modules, which manufactured RF, wireless and transmission multi-chip modules.

In 2001 at the company’s height, Nortel had 16,000 employees working in Ottawa with 12,000 of them in R&D. Researchers were working in all areas of hardware, software and semiconductor technology among multiple labs, including the Physical Design Integration Group, which focused on systems packaging and product integrity at the nearby Kanata complex. Ten years later, the nearly empty campus would be sold to the Public Works and Government Services Canada for a cash purchase price of CDN$ 208 million. The fall of Nortel marks a dark period in the long history of a vibrant and innovative Canadian-based telecommunications industry. Over 6000 patents, the intellectual output of this colossal R&D workforce, would be licensed to a consortium of foreign telecom OEMs for CDN$ 4.5 billion and the Orbitor would remain an obscure footnote in the development of mobile technology.

The Birth of Bell Canada

Montréal lies at the eastern tip of Canada’s Montréal-Ottawa-Toronto technology corridor and was home to the earliest manufacturing within the telecommunication sector. The industry got its start at the western tip, in the outskirts of Toronto in the town of Brantford, Ontario where Alexander Graham Bell first conceived the telephone in 1874. Bell’s concept of transmitting speech electrically came into sharper focus in Boston where he created his “harmonic telegraph,” along with his collaborator, Thomas Watson. Working in the transmitter room on June 2, 1875, Watson unintentionally produced and transmitted a twanging sound while trying to free a reed that had been too tightly wound to the pole of its electromagnet. Bell heard the sound from the receiving room and realized the complex overtones and timbre was similar to the human voice. Inspired by this accident, Bell raced to perfect his telephone while also writing up specifications to be filed with the United States Patent Office.

On February 14, 1876, Alexander Graham Bell’s telephone patent application entitled “Improvement in Telegraphy” was filed by his attorney; just a few hours before the attorney for a Western Electric inventor named Elisha Gray filed a caveat for a telephone entitled “Transmitting Vocal Sounds Telegraphically.” A patent caveat was a type of preliminary application for a patent that gave an inventor an additional ninety days grace to file a regular patent application. The caveat would prevent anyone else that filed an application on the same or similar invention from having their application processed for ninety days. Alexander Graham Bell was the fifth entry of that day, while Elisha Gray was 39th. Therefore on March 7, 1876, rather than honor Gray’s caveat, Bell was awarded the first patent for a telephone - US Patent No. 174,465. Controversy persists to this day over the filing of these patents and the true ownership of the invention. Three days after being awarded the patent, Bell built and successfully tested Gray’s liquid transmitter design, famously transmitting his “Mr. Watson, come here, I want to see you” message. On September 12, 1878, lengthy patent litigation involving the Bell Telephone Co. against Western Union Telegraph Co. and Elisha Gray began.

The Bell Telephone Co., was organized in Boston in 1877 by Bell’s father-in-law Gardiner Greene Hubbard, and was started for the purpose of holding “potentially valuable patents,” principally Bell’s master telephone patent. The company subsequently merged with others (including Hubbard’s National Bell Telephone Co.) to form the American Bell Telephone Co., which would later evolve into AT&T under the direction of Thomas Vail. Bell gave 75 percent of the Canadian patent rights to his father who served on the board of directors for Bell Telephone of Canada, incorporated in 1880. Bell Canada would operate telephone exchanges throughout Canada and manufacture telephones and associated equipment.

Northern Electric is Created

In 1881, a former New England sea captain named Charles Fleetford Sise unified all of the Canadian telephone networks under the aegis of Bell Telephone of Canada. He then began developing long-distance networks between cities. When the operator of the world’s first telephone manufacturing plant died of tuberculosis, Sise lost his domestic supply of telephone equipment. Without an alternative Canadian supplier he would lose the Canadian patent rights. Had it not been for this law and his inability to find an alternative supplier, Sise may not have been pressured to start his own manufacturing plant and subsequent R&D labs.

After consulting with Theodore Vail, president of the National Bell Telephone Co., a major shareholder in the Canadian telephone business and the man often credited with creating the nationwide AT&T network, Sise hired an experienced foreman from National Bell’s Boston plant and rented two floors of a building in Montréal for manufacturing. The mechanical division of The Bell Telephone Co. of Canada began in 1882 with the arrival of Brown and the rental of those two floors. In addition to phones, the department would start manufacturing its first switchboard, a 50 line Standard Magneto Switchboard. The popularity of the telephone led to yearly growth and an expansion to 50 employees by 1888, transforming into a separate manufacturing branch with 200 employees and a new factory under construction by 1890.

Shortly, the production capacity outpaced demand for phones and the branch faced closure unless it could manufacture other products. In 1895, Bell Canada spun off its manufacturing arm to expand by building phones for other companies as well as other devices such as police and fire department call boxes. This new company was incorporated as Northern Electric and Manufacturing Co. Ltd.

By 1899, Bell Telephone of Canada purchased the Barrie and Johnson Wire and Cable company, which it had renamed the Imperial Wire and Cable Co. Northern Electric Co. amalgamated with Imperial in 1914 and moved to a new factory located at Shearer Street in Montréal. This facility would be the company’s primary manufacturing center until the mid-1950s. In between that time, Northern Electric would grow alongside the technology that marked the first half of the twentieth century, developing a one-wire telegraphic switchboard for military service known as the portable commutator in WWI; in 1922, Northern developed the first Canadian vacuum tube – a $5 “Peanut” tube that was the smallest made, requiring only one-tenth of an amp, which was used on repeater apparatus for long-distance lines. The company also grew with the production of a large commercial grade radio system in 1923 and general use consumer radios in 1926.

With Canada pulled into WWII, the government froze development of non-military products in 1941, but placed orders for $40 million worth of military supplies. This represented 2.5 times the company’s sales from 1939, leading to an expansion from 5000 to 8000 employees working around the clock to meet production demand and develop new technologies. Northern Electric supplied electrical equipment for Royal Canadian Navy Destroyers and produced a two-way wireless set for telephone communications between tanks and other military vehicles operated by Canadian, British and Russian armed forces. The company was also developing expertise in new technologies such as radar and microwaves, delivering 19,000 magnetron tubes for radar. This expertise would serve the company well after the war in its development of Canada’s first microwave relay long-distance telephone and television systems.

Cutting the Cord with Bell Labs

Before Bell came along, Western Electric was the principal manufacturer for Western Union, the telegraph company. In 1882 Western Electric joined the Bell System (Bell purchased a controlling interest in its stock) and subsequently the company manufactured in every country with significant telephone systems. Bell’s subsequent acquisition of Western Electric was crucial in the establishment of a nationwide phone system, a system characterized by its early, primary emphasis on the production and distribution of hardware. Western Electric owned 44 percent of Northern Electric, the rest was owned by Bell of Canada. For the first fifty years of the company’s existence, Northern Electric essentially manufactured equipment based on designs and processes licensed from Western Electric.

In 1949, the Department of Justice sought the separation of Western Electric (manufacturing) from AT&T (service). As a consequence of this antitrust case, AT&T was ordered to divest all of its non-telephone activities, except those involving national defense. The 1956 consent decree also called for Western Electric to relinquish its 40 percent interest in Northern Electric of Canada, the last vestige of its international operations. Under the decree, Western Electric terminated its patent and licensing relationship with Northern Electric.

Cut off from its major technology wellsprings, Northern would either have to license technologies from others in the Canadian market or create its own technologies to compete in world markets. Choosing the latter, Northern Electric began to achieve technical independence in 1957 by creating its own research and development facilities in Belleville, and, in 1959, established Northern Electric Research and Development Laboratories in Ottawa, Ontario. At the same time, Bell Canada began stepping up its own development activities.

Northern Develops Trans-Canada Skyway

In 1958, Northern built the equipment for the Trans-Canada Skyway, the world’s longest microwave transmission network spanning over 6275 km at a cost of $50 million ($375 million in 2012 dollars). The system was implemented under Bell Canada president Thomas Eadie as an all-Canadian microwave network for transporting telephone conversations, teletype messages and television signals. This microwave-relay used 139 line-of-sight repeater stations spaced at approximately 25 mile intervals, to make a connection from Sydney, Nova Scotia to Victoria, British Columbia. The system allowed a microwave signal to travel from one coast to the other in just one-fiftieth of a second.

Figure 1

Figure 1 Route of the Trans-Canada Skyway microwave system.

The towers ranged from nine meters high to over 100 meters high in northern Ontario (see Figure 1). The 10 or 12 foot diameter parabolic antennas were fed by rectangular waveguide with ferrite isolators and circulators enabling two transmitters and two receivers to be connected to one dish, providing two separate message channels through the repeater in each direction. In the interest of providing greater isolation, the received signal was re-transmitted 252 MHz above or below the received frequency. The systems used eight such frequencies ranging from 5.974 to 6.404 GHz with 118 MHz spacing between two channels over the same path in the same direction. Each received carrier, at a level of approximately 1 micro watt, together with the local oscillator output, entered a balanced crystal mixer pre-amp whose 70 MHz output was pre-amplified to 0.09 V rms.

Figure 2

Fig. 2 Northern Electric's Contempra phone, the first dial-in-hand design.

A New Emphasis on R&D

Chief executive Cy Peachey joined the company in the 1920s and was instrumental in establishing the company’s ethos of internal research and development. When Northern Electric was deprived of its links to Western Electric after the U.S. antitrust action, Peachey declared, “We know how to do it. We’ve got good engineers and we’re going to build our research and development organization and we’re all going to be pretty proud of it.” As a major force at the company until the 1960s, he helped establish research labs in Belleville, Ontario (1957) and two years later in Ottawa, which started out with 42 engineers but grew to 800 people within five years. The lab was responsible for developing a growing list of successful products such as the very modern Contempra telephone (see Figure 2) featuring the first dial-in-hand design. This product sold into 3.4 million homes and was put on display at New York’s Museum of Modern Art.

On the technology side, the R&D labs developed the SA-1 community dial office (CDO), a small Class 5 Crossbar for local switching used in telephone exchanges in rural areas. Rural communities represented a sizable portion of Canada’s sparse population and provided a good market niche for Northern to capitalize on while serving the unique communication needs of its customers. Freedom from AT&T allowed local engineers to pursue their own solutions for a market with different needs than those of its southern neighbors.

Communications for rural living provided an opportunity in the SATCOM business in the 1960s. When the Canadian Parliament decided to establish a domestic communications satellite network called Telesat Canada, Northern played a key technical role. As a prime subcontractor for Hughes Aircraft, Northern developed the satellite electronics and antenna equipment. The Anik A satellite system, which cost $90 million at the time, made Canada the first country to utilize synchronous satellite for domestic communication purposes. A contract for three satellites to operate in the 6/4 GHz range was awarded to Hughes Aircraft, with the participation of Northern Electric and Spar Aerospace (another Canadian company). Each satellite provided twelve high-capacity microwave channels for color television or as many as 960 one-way telephone calls. Of the thirty-seven ground stations built, twenty-four were equipped with receive only capability to provide live television programming to isolated Northern communities. This reduced the cost of the ground stations to $150,000 each from one- to two-million dollars for units capable of carrying radio, television and two-way voice.

The Digital Communication Revolution Begins

In September of 1969, under the direction of a young Bell Canada engineer named R. Charles Terreault, Northern Electric set out to create a twenty-year plan for developing a telecommunications network. Terreault assembled the twenty-person team that produced a monumental twelve-volume Long Term Network Evolution Study, drawing upon the latest developments in microelectronics. The plan forecast the total digitization of the network up to the point of ISDN then called Multiple-Use Selective Routing. Everything was planned for, from decentralization of switching toward the user to an orientation toward broadband switching (for video). The cornerstone of Terreault’s plan was the introduction of a complete line of digital switches by the late 1970s and early 1980s.

When Bell Labs put its first digital transmission system, the T-1, into service in 1965, Terreault realized that the digitization trend was irreversible, not only in transmission but in switching. In 1971, Bell Canada and Northern Electric followed the U.S. by deploying their own hybrid system switch, the SP-1 – representing the first major technological achievement in the modern history of Canadian telecommunications. The small switch was ideal for rural independent operating companies and the $60 million dollar R&D investment was a great success, helping Northern establish a U.S. market.

Terreault symbolized the new generation of Canadian researchers who had emerged since the split with Western Electric and Bell Labs. His Digital World team members were ready to pioneer the digital revolution in Canada and the global market, but he had to convince Bell Canada’s senior management in the investment. The challenges were technological, organizational and economical. In 1971, Bell Canada and Northern Electric launched a joint venture Bell-Northern Research (BNR) and the new-to-market SP-1 hybrid switch was just beginning to pay off its investment.  There was internal resistance to undertake a new technical direction so quickly. When Terreault performed a series of impact studies on a five years status quo, all indicators showed that a rapid transition to fully digital switching would be profitable for the carrier.

While many company executives agreed with the conclusions of the Long Term Network Evolution Study, they were skeptical about the pace of the transition to the digitalization world. Ultimately, Terreault’s long-term plan was accepted and in 1972, Bell, Northern and BNR undertook a joint brainstorming session on digital switching that resulted in the definition of three essential elements: a private branch exchange (PBX), a low-capacity public switch, and a high-capacity public switch.

By late 1972, Northern Electric released its first electronic switch, the SG-1 also known as PULSE PBX. Within three years, the company had sold 6000 units. In 1973, the engineers squeezed a translation coder-decoder (CODEC) unit onto a single integrated circuit, making it cost effective to convert between analog and digital and serve each telephone line with its own Codec. This technical achievement was to be the key to all digital-switch programs and allowed Northern’s first completely digital product, the SL-1 PBX with the capability to serve organizations with up to 7600 inside lines. Years ahead of any competition, the success of the SL-1 led the company to extend its digital technology to the telephone central office switch. Thus, BNR developed the Digital Multiplex System (DMS-10) for small central offices and the DMS-100, a full-featured, local/toll digital switch with support for 100,000 lines two years later.

Rapid growth in the United States became a model for further expansion in the Caribbean, Europe and the Pacific Rim. In Japan, the DMS-10 allowed Northern to become the first non-Japanese supplier to Nippon Telegraph and Telephone, and opened markets in China and Eastern Europe. Because of an existing U.S. appliance maker called Northern Electric, the company renamed itself as Northern Telecom in 1976 and restructured its international subsidiaries under one corporate umbrella.

Northern Telecom Enters the Wireless Market

Northern Telecom was part of the wireless revolution from the earliest days of cellular. In 1982, Northern Telecom and General Electric announced plans to develop, build and market cellular mobile communication systems based on switching provided by the DMS-100 and radio equipment from GE. That same year, AT&T was forced to spin off its Bell companies under pressure from the U.S. government, opening up the U.S. switching market to competition. As the second largest supplier of telecommunications equipment in North America, Northern Telecom was looking at a U.S. switching business worth $320 billion a year.

The chief executive through this period of growth was John Roth. Roth was instrumental in establishing Northern Telecom’s wireless business. Joining the company in 1969 as a design engineer, he was named COO in 1995 and then president in February 1997. Under his leadership, the R & D budget was bolstered to nearly 15 percent of revenue, which amounted to US$ 1.58 billion in 1995. As the digital switching market matured, much of the research dollars went into new specialized areas and parallel restructuring of the company into four separate businesses. The first business was Northern’s traditional switching operations that served old-line phone companies; one unit focused on broadband networks serving cable companies and the upstart long-distance companies created by the AT&T break-up; one specialized in enterprise networking serving large organizations – including corporations and government departments – using internal communications networks; and one concentrating on wireless networks, which mainly served the rapidly expanding cellular telephone firms.

Roth wasted no time in mapping out the next step in the evolution of Northern Telecom, betting the company’s future on the Internet. Roth saw that networks were going to migrate from telephone-based to Internet-based. He wanted Northern Telecom to be at the center of this build up of the Internet into a technology as reliable and accessible as the telephone. Needing to move quickly to beat out the competition, Roth turned largely to acquisitions rather than relying solely on in-house R&D efforts. The company’s soaring stock facilitated the completion of stock-swap acquisitions.

Four major acquisitions were completed in 1998, including Winnipeg-based Broadband Networks Inc., a designer and manufacturer of broadband wireless communications networks (purchased for US$ 593 million); Chelmsford, Massachusetts-based Aptis Communications Inc., a start-up firm that concentrated on remote-access data networking (US$ 290 million); and Kanata, Ontario-based Cambrian Systems Corp., maker of an innovative technology to speed up Internet traffic (US$ 300 million). These purchases were dwarfed, however, by the US$ 9.1 billion stock-swap for California-based Bay Networks Inc. Bay Networks, the third largest maker of products linking computers to the Internet, served the corporate market with a host of data networking products and services that meshed well with Northern Telecom’s existing corporate operations. The addition of Bay provided Northern with the ability to offer corporate customers integrated networks for sending voice, video and data over the Internet. With the company focusing increasingly on networking, Northern Telecom was renamed Nortel Networks Corp. in April 1999.

By the fall of 2000, Nortel Networks’ market capitalization hit US$ 240 billion, a six-fold increase since Roth had taken over as CEO. Roth planned to continue the breathtaking acquisition pace, vowing to spend ten percent of the company’s market cap each year to purchase the new technology it would need to keep pace with the other heavyweights of networking, most notably Cisco Systems Inc., Ericsson and Lucent Technologies Inc. Nortel’s emphasis on new technology was demonstrated by its generating 60 percent of its revenues from products less than 18 months old. The company had a clear focus on optical technology for many years. In 1966, researchers at BNR published the first paper considering the possibility of using glass fibers to carry information. By 1989, Nortel became the first telecom supplier to announce a complete family of SONET-standard fiber optic products. By 2000, Nortel was working to establish a more significance presence in the undersea-fiber business while gaining a reputation as a leader in the area of wireless Internet technologies.

The Downfall

Nortel once accounted for over a third of the value of the entire Canadian Stock Exchange, now known as the S&P/TSX Composite Index. It became a giant through the surge in Internet demand in the latter half of the 1990s. That growth was also leveraged by the company’s ambitious strategy of acquiring smaller companies to help it meet that demand. Nortel’s reputation as a market heavyweight derived from its influence on the TSE 300 Composite Index. Unlike the Dow Jones, which is a price-weighted average of 30 stocks, the TSE 300 and the S&P/TSX Composite are float-weighted indices, which take into account the number of shares available, as well as the company’s share price. So Nortel, which used to have 3.8 billion shares outstanding, wielded an enormous amount of influence.

The higher Nortel’s share price went, the greater its weight in the index and the more the TSE 300 Composite Index rose. In 1999, the TSE 300 Composite Index rose by almost 30 percent, compared to the Dow’s 25 percent rise. Without Nortel and BCE, the TSE 298 was up only 6.5 percent. The “Nortel effect” made it virtually impossible for investors or the manager of a diversified Canadian equity mutual fund to outperform an index that had a huge exposure to a stock that was doing so well. On the flip side, when Nortel’s stock falls, so does the index, which is what happened on October 25, 2000. Company CEO, John Roth issued the first in a long series of sales warnings and the stock fell from $96 to $71 and the TSE 300 plunged 840 points in one day.

Throughout 2001, with its sales steadily collapsing, Nortel issued a stream of revenue and profit warnings and began a series of sweeping layoffs, cutting its 90,000-strong workforce by more than half. By the end of the year, the stock went from $46 to under $12. A continued sales slump and a downgrade of its long-term debt to “junk” status knocked the stock price down to 69 cents by October – less than 1 percent of where it had been just two years earlier and facing delisting from the New York Stock Exchange. The company that was once Canada’s biggest now held the 46th spot and had a weighting in the S&P/TSX Composite Index of less than one percent.

Job cuts that brought the workforce down to 35,000 employees started to pay off on the bottom line by the spring of 2003. In April, the company reported its first quarterly profit in three years. Technology companies began buying equipment again and Nortel landed several high-profile billion-dollar contracts.

But just as Nortel’s stock was recovering, the company announced that an accounting review had turned up “irregularities” and it would have to restate its finances back to 2000. In March 2004, two senior finance executives were put on leave and then fired the following month along with CEO Frank Dunn after Nortel revealed that its 2003 profit would be slashed in half. As regulators began investigating, the company cut another 3250 jobs. In May of 2005, after Nortel finally reported its 2003 and 2004 financial results, it was clear that the company was facing only modest revenue growth and Nortel’s management was facing an increasingly competitive marketplace. The shares slipped to $3 – their lowest point in more than two years.

Nortel paid out US$ 575 million and 629 million common shares in 2006 to settle a class-action lawsuit that accused the company of misleading investors about the health of the company. On December 1, 2006, Nortel went ahead with the stock consolidation it had planned but never implemented back in 2002. It chopped the number of shares by 90 percent — a move that boosted its stock price 10-fold to the $24 range. In February, 2007, Nortel announced its plans to reduce its workforce by 2000 employees, and to transfer an additional 1000 jobs to lower-cost job sites.

The Securities and Exchange Commission filed civil fraud charges against Nortel for accounting fraud from 2000 to 2003 to close gaps between its true performance, its internal targets and Wall Street expectations. Nortel settled the case, paying $35 million. By February 2008, the stock was back below $10 ($1 on a pre-consolidation basis) as losses grew and sales fell. By March, the stock had hit an all-time low. In late 2005, the company tried to engineer a turnaround. Mike Zafirovski, a former president and COO of Motorola took over as president after Nortel paid Motorola $11.5 million to release him from his non-compete agreement. John Roese was brought in to help correct many years of neglect in R&D. Constant retrenchment at Nortel had left the fabled BNR legacy in tatters. Three years of painful rebuilding had given the company a growing financial safety margin, though only marginal profits, to start behaving like a contender again. In August of 2008, Nortel Networks announced it was buying Novera Optics and three other small companies, the first significant acquisitions in years. The price was modest, less than $33 million, but it was the strongest signal that Nortel believed it was finally turning the corner and could compete for promising startups with Cisco Systems, where several of the company’s newest executives had formerly worked.

But several failed business decisions and the freezing of global credit would thwart this turn around. On Roese’s watch, Nortel sold promising but profitless wireless equipment to Alcatel just as older generations of the same gear suddenly found big markets in emerging economies. Nortel had pulled out of India in the face of mounting losses, just as the market opportunity exploded, forcing the company to overhaul aging gear to generate some sales. And then the global financial crisis hit and the recession compounded Nortel’s financial challenges and directly impacted its ability to recover. In 2008, despite winning a contract from China Telecom for advanced wireless gear in seven provinces, the company had trouble financing the deal before it would start generating revenues sometime in the following year. During its reporting of third quarter 2008 results, Nortel announced it would restructure into three vertically-integrated business units: Enterprise, Carrier Networks and Metro Ethernet Networks, this last entity had been put up for sale the previous month. The company, whose name had long been synonymous with optical networking gear, was selling off its Metro Ethernet Networks (optical and 40G) business to shore up the rest of the company and focus on 4G and related technologies. As part of the decentralization of the organization, four executive positions were eliminated including Roese. The company was in a death spiral.

In January 2009, Nortel Networks filed for creditor protection. The company reached this point after multiple management regimes had failed to remake the company after the telecom bubble burst. The company’s demise was gradual but steady. The final phase in the Nortel saga was the pre-announced 3Q08 earnings (guiding down expectations), the sale of its Metro Ethernet Networks (MEN) division, and the latest reorganization. The announcement followed numerous incremental divestitures and shutdowns of specific businesses and product lines (for example, broadband access and the UMTS and WiMAX RAN segments) in an attempt to focus and differentiate while cutting costs.

Nortel hoped that by filing with a cash reserve of $2.6 billion, the company would re-emerge as a leaner version of its former self in the future. Nortel’s mobile infrastructure business was now solely focused on Long Term Evolution/System Architecture evolution LTE/SAE using scarce product development dollars to fund another promising technology that North American phone companies wanted to support iPhones and other future devices capable of handling video and huge files. Nortel was also working hard to develop a strong LTE/SAE ecosystem including LG Electronics, LG Nortel and other partners, doing its best to demonstrate capabilities through trials with Verizon and T-Mobile Germany and hoping for some commercial launches within the year.

But the bankruptcy filing was easily exploited by competitors who reminded customers that Nortel could no longer give assurances of continued development of any specific products and used the filing as a chance to reshuffle the supplier landscape to their benefit. After repeated restructuring, a shaky immediate financial outlook, shrinking market share, tight public credit markets and cautious investors, the cards were stacked against any such comeback.

The Sell-off

Two and a half years after filing for bankruptcy protection, Nortel threw in the towel, announcing that a consortium of six different companies had won the rights to its 6000 patents in a July 2011 auction. The list of winners included Apple, EMC, Ericsson, Microsoft, RIM and Sony. Not among the winners were Google, which placed the initial $900 million stalking horse bid, and Intel. According to Nortel, the patents won a total of $4.5 billion from the six companies involved. RIM indicated that it spent $770 million in the auction, while Ericsson said it paid $340 million. The other companies involved did not share the dollar value of their bids. The 6000 patents pertained to wireless technology, LTE 4G, data networking, voice technologies, and more. The auction was one of the final steps in Nortel’s dissolution following bankruptcy. The proceeds will go to paying back Nortel’s creditors.

The Aftermath

In writing this article, I was in contact with an engineer who had been at BNR and Nortel for 71/2 years in the microwave division, followed by the TDMA base station group and finally, the OC-192 fiber optic group before being laid off like everyone else. At the very end, he was a technical advisor. During the boom period ending around 2001, he estimates that there were between 50 and 100 RF/microwave designers doing hardcore design in Ottawa covering all aspects of RF circuit design. This design work would range from wireless CDMA, TDMA and GSM base station circuits all the way to fiber optics OC-3 up to OC-768 circuit packs and everything in between. In 1994, he was working on the LNA for a 512 QAM 6 GHz radio. At one point, he recalled hearing Nortel was Agilent’s second biggest test equipment customer in the world. “Seeing all the equipment we had in the huge labs here, it didn’t surprise me.” What was surprising to everyone was just how far this Goliath would fall.

Recent Articles by David Vye - Editor, Microwave Journal

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