Channel Questions Abound For Avaya As Nortel Acquisition Heads Toward Approval Stage

That question and others were top of mind as news of the planned acquisition raced around the channel Monday.

Avaya and Nortel confirmed in separate statements that Avaya would pay $900 million in cash and $15 million for an employee retention program to acquire all assets of Nortel's Enterprise Solutions business and shares of Nortel Government Solutions Inc. and Diamondware Ltd.

The deal -- subject to court approval -- comes after a formal bidding process for Nortel's enterprise business and before that, the $475 million "stalking horse" bid Avaya made for the business in July.

Nortel entered bankruptcy protection in January after its restructuring plans failed and it lost $5.8 billion last year, and has spent much of 2009 auctioning off pieces of its business.

In an interview with Channelweb.com, Nortel Enterprise Solutions President Joel Hackney said he had two messages for Nortel's channel following the confirmation that Avaya had won the enterprise business.

"The first message is that this is an extremely positive day where we're able to demonstrate to our current and future partners that we now have a clear path forward that allows us to not only continue our partnerships but grow our relationships," Hackney said. "The second message is, the partner base is as important to us or more important to us than it's ever been. One of the major drivers of this transaction was Avaya's interest in learning and leveraging from Nortel's channel relationships and bringing forward the benefits of working with both Nortel and Avaya."

Avaya, which declined comment to Channelweb.com beyond its Monday morning statement, has spent much of the past few years refocusing its efforts on the channel and is expected to launch its global channel program at its partner conference in Nashville, Tenn., in mid-October.

The company has been offering incentives to Nortel partners to migrate to Avaya since late last year, and, Hackney argued, having Nortel's partner base in its purview helps Avaya accelerate its own channel goals.

"Avaya for several years had been pursuing more direct strategy but then expressed interest in growing a more channel-friendly model," Hackney said. "It would have taken them years to do that and whether they would have been able to do that effectively is a question. We provide a more complete product suite and one that can enable partners to compete more directly in the marketplace with other solutions, and also augment our partners' capability gaps in ways we are not able to do as two separate companies."

Hackney wouldn't comment on what his role or those of his executive team would be under Avaya management, or what steps would be taken immediately if the deal is approved.

Hackney said during a conference call for analysts that at least 75 percent of the Nortel unit's workforce would be preserved, but did not elaborate on how the $15 million in employee retention program money from Avaya would be used. Channel observers reacted with guarded optimism about the Avaya-Nortel agreement, with many saying they were glad a long period of turmoil for Nortel might be coming to an end.

"I'm so happy to see this thing finally come to a conclusion and have this uncertainty behind us," said Tony Parella, president and CEO of Shared Technologies, a Coppell, Texas-based solution provider. "I think there'll be mixed reviews for a while, but given the strain the industry's been under, this is something that's very important."

Shared, which is one of Nortel's 10 largest partners, was also among the 19 Nortel partners recruited by Avaya in the past year. Parella said he heard no indication from Avaya that there were immediate plans to discontinue any existing Nortel product lines, and that he thought Avaya would respond appropriately to areas in which Nortel was either stronger from a product standpoint or where Avaya doesn't already play, such as in data networking.

"I see very little risk of them dismantling the Nortel platform and cannibalizing the customer base. That's not the sense you get from Avaya at all," he said. "This Avaya has been very different than the Avaya I saw the past 10 years. I never took on that line before because they were not pro-channel, and they courted me a long time."

Despite its troubles, Nortel is still a name, Parella said.

"I still believe there's a lot of loyalty to the Nortel brand, and now they can go forward with the right capital structure," he said. "They were dead in the water, with no way to turn their company around with so many historical sins. But from the customer view, how Avaya handles messaging is critical. Partners need to hear what the scale of the business does for Avaya."

Some VARs contended that Avaya needs to communicate what's going to happen to Nortel's products and channel leadership early on -- or risk a flight of confused partners to competitors.

Cisco, Juniper and others have been stalking Nortel's channel during the tumult -- a trend that will continue if Avaya and Nortel stumble during the transition, said Bob Hafner, managing vice president of Gartner Research's enterprise communication application team.

"Will Siemens, will Cisco, will Microsoft start targeting some of the Nortel channels in the interim? Yes. They will be looking at the channel as an opportunity to say, you know, during this next period of multiple years while Avaya and Nortel are sorting through their products and strategies and trying to rationalize the channels, why don't you come with us? I expect that to be a conversation that all Avaya/Nortel competitors try to have," he said.

"We're going to need to hear, as soon as possible, and as clearly as possible, what products live and what products die," said one Nortel solution provider, who asked not to be identified. "It'll take them some time to figure that out, but the sooner they can communicate that as clearly as possible, the sooner the channel will be confident. Otherwise, the transition will be messy."

What several solution providers and Hafner agreed on was certainty that the deal would close.

"I believe it will close, it's just the timing," Hafner said. "One thing I am saying is that I believe it's not going to happen nearly as quickly as they think it is. Everything that's happened with Nortel has taken longer than expected, so why should this be any exception? It could be as late as the second quarter of next year."

How Avaya continues to evolve as a channel player will be crucial to its success with Nortel, observers agreed.

"The reality is they'll [Avaya] never get the scale and growth they need if they don't have the channel -- you can't possibly get there with a direct sales force in today's market," Parella said. "But we see the commitment, and they've embraced us and been very supportive. And at the end of the day -- even all you're going to hear about antitrust and courts -- this deal will close."

"The execution over the next couple of years will make the difference between an amazing merger or acquisition, and one of those we talk about as 'maybe it would have been better if they'd stayed separate,'" Hafner added. "Don't get me wrong, in any scenario, it will be positive for Avaya. They got a good deal on this and it's a large customer base. But will it be a total success or an average success? It's going to be a couple years before we know that."