The story begins in Brantford, Ontario in 1874, when Alexander Graham Bell invented the telephone. A dozen years later, the Bell Telephone Company began manufacturing phone equipment in Montreal. That manufacturing arm of the company eventually became Nortel Networks.
Nortel Engaged in Cutting-edge Research
At its peak in 2000, wrote Andrew Wahl in Canadian Business Magazine (March 2009) “Nortel was the world’s largest supplier of telecom equipment, earning revenues of U.S.$30 billion and employing 94,500 people worldwide- 25,900 people in Canada, 12,600 of whom were in research and development.”
The company was spending around $2 billion a year on research and was producing the world’s most advanced communications devices. Nortel was a brilliant star in Canada’s technology sector, and then it crashed and burned.
Management Fumbles at Nortel
First there were some bad management decisions; at the height of the dot com bubble in the late 1990s, Nortel was buying up companies for top dollar. When the telecom bubble burst in late 2000 the rapid decline began. Nortel’s market capitalization plummeted from $389 billion in September 2000 to less than $5 billion two years later.
The price of the stock followed a similar trajectory, from $124 to pennies. Investors and pension funds took a terrible hit as did the 60,000 Nortel employees who lost their jobs.
Then came the accounting scandals. Liabilities appeared on the books as assets and profits were reported where there were losses.
On October 15, 2007, CBC News reported that “Nortel Networks Corp. agreed to pay $35 million US to settle Securities and Exchange Commission accounting fraud charges over the company's financial accounting.”
Finally, in June 2009, the company announced it would not seek to emerge from the bankruptcy protection it had been granted six months earlier.
Nortel Assets on the Auction Block
Now, the vultures are circling the carcass of the company and picking off the choicest bits that are left. All that research carried out by Nortel engineers means that the company owns a lot of very valuable patents that other businesses are buying up, and many of these assets are being sold off to foreign corporations.
Ottawa Fails to Protect Valuable Assets
This is where the Conservative government comes in for a lot of criticism. First, Ottawa refused to try to bail out the company as it had done with General Motors and Chrysler. Second, the federal government seems to have done nothing to help Canadian companies buy up Nortel’s assets.
Research in Motion (RIM) is the Canadian company that makes the popular BlackBerry wireless communication device. It wanted to buy Nortel’s Long Term Evolution technology, which is a cutting-edge development that will allow cell phones to handle more services.
There appears to have been a lot of backroom squabbling among senior executives at both companies that Ottawa did nothing to smooth over, as reported in The Globe and Mail by Boyd Erman (July 22, 2009). RIM claims it was blocked from making a bid, Nortel claimed RIM refused to play by the rules. And, while the two bickered, the Swedish phone company Ericsson bought Nortel’s wireless business for $1.1 billion. Ericsson says it will keep 800 of Nortel’s staff on the payroll in Canada.
Avaya Buys Nortel’s Manufacturing Arm
A second large chunk of the Nortel empire, its manufacturing wing, has been bought by the U.S. company Avaya Inc. However, a competing bid was on the table that would have kept the company in Canada.
Writing in The Globe and Mail (September 18, 2009) Andrew Willis described a plan “to create a Toronto-based global tech giant by merging a Nortel manufacturing arm with that of Germany’s Siemens Enterprise Communications. The Ontario government had promised grants of $75 million to help the deal go through, but, says Willis, the transaction “ended in failure because of a lack of support from Ottawa.”
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