A growing proportion of cellular phone shipments are replacements (last year, almost 60 percent).  So it's no wonder every year, we see new handset models, as vendors try to incorporate new functionality to drive up replacements.  Over this past year, there was added emphasis placed on camera phones, which are great not only for the handset manufacturers themselves, but also for operators because they can hopefully increase data traffic.  So it was no wonder to see the so many models having built-in cameras at 3GSM, including the sleek Motorola SLVR V8 show on the figure (hat tip: Gizmodo).  The model is really compact and features tri-band capabilities (GSM/GPRS/EDGE), 5 Megs of memory, Bluetooth support, color display, push-to-talk, MP3 playback, and an MPEG4 VGA camera.

Camera phones are tracking at about 50% of new handset shipments in Western Europe, and part of the reason for their success is that vendors have been able to keep the costs down (the integrated camera models is about 5% of the total bill of materials for the handset).  One of my own biggest questions from 3GSM was - will users want a cell phone that can take pictures or a camera that can make phone calls?  Honestly, one could almost not tell the two apart.

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Upon hearing that MCI (Nasdaq:MCIP) shareholders had questioned the wisdom of accepting a $6.64 billion offer from Verizon (NYSE:VZ) rather than an initial $8 million bid from Qwest (NYSE:Q), it seems that Qwest executives decided to up their ante and submit a revised $8 million offer with more guarantees and upfront money.  The idea is to offer more cash up front and also protect MCI if Qwest shares drop by as much as 10% before the deal closes. 

The reason that some MCI execs initially were more inclined to accept the Verizon bid (even though it came in lower than Qwest's) was the debt that Qwest is currently burdened with ($17 billion).  The reality is that while Qwest is the incumbent in 14 Western and Midwestern states, it faces a lot of competition for HSI (High Speed Internet) and cable TV services.  The company incurred more debt when building its state-of-the-art national fiber optic network. 

This latest offer will get the full consideration from the MCI board, but predicting its reaction is difficult, considering the public manner in which the bid was made and the turbulence of some of the shareholders.  It could very well mean that MCI will leverage this latest Qwest bid to get more money from Verizon.  But the million dollar question is how much more MCI will be able to fetch from Verizon - some folks in Wall Street are guessing that increase will not be very significant (less than $0.50 per Verizon share). 

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Alcatel (NYSE:ALA) announced a couple of days ago a partnership with Microsoft (Nasdaq:MSFT) geared towards developing an integrated IPTV delivery solution.  The idea is enable MSOs to deploy IPTV faster and cheaper.  This relationship is the first significant one that unites a major triple play solution vendor and one of the top IPTV software vendors.

Interestingly enough, prior to signing this agreement, Microsoft and Alcatel were competing in the IPTV middleware segment (in fact, Telecom Italia was trialing both platforms).  Alcatel had acquired a couple of software houses to create its own IPTV offering (the Open Media Suite).  But Microsoft kept piling win after win (SBC, Verizon, a trial at Bell South, and Swisscom. among others), and Alcatel had to implement Microsoft's IPTV system in deals where it was the primary equipment supplier for DSLAMs and routers (such as SBC, for instance).

So nothing like a partnership to solve the issues.  By jointly developing an IPTV solution with Microsoft, Alcatel saves considerable system integration time (since it can integrate Microsoft's software into its hardware).  Microsoft wins a way to tap into the world's large carriers.   

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Om Malik reports on the ongoing broadband price war in India, where $8 a month can get you a basic 256 kbps service from Bharti Telecom (still nothing compared to the French broadband bonanza that was discussed previously here, but cheaper than Indian incumbents BSNL and MTNL).  The original story appeared on the Times of India, and is worth reading.

The part of Om's blog entry that I found interesting was his comment on how difficult it was to get a phone line in the old days (often entailing bribes).  Well, my experience growing up in Brazil was not much different: getting a line from TELESP in the good old days was very, very difficult, and the wait was enormous (baksheesh in India was better, because at least that is a bit faster - in São Paulo, there were bribes and on top of that, there were middlemen... really, there were "brokers" who got into the game and used to charge extra bribes supposedly for faster turnaround times).  Of course, this was way back in the late 70's-early 80's and many years before Telefonica entered the market.

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Tom Evslin wrote a great insight on the topic of vertical integration and how it is no longer a sound business strategy (hat tip: Fred Wilson from A VC).  It is an excellent article that explains the transition from vertical to horizontal integration.  IBM, Tom argues, was in the older days of computing the typical model of vertical integration: it made the hardware, chips, application software, OS, and even peripherals, while also providing instruction, consulting services and accessories.  However, with the advent of the microcomputer, a paradigm shift took place, with the business changing to a horizontal model: Intel became the microprocessor king, while Microsoft dominated the OS and applications.  IBM had to change itself, and managed to adapt to the new environment thanks to initiatives such as IBM Global Services, although it is not the dominant force it once was.

Tom wonders whether or not SBC will be able to make vertical integration work with its acquisition of AT&T.  Clearly, the vertical strategy failed at AT&T, since it lost the opportunity to be an ISP powerhouse and a key local access player.  Tom makes it clear which strategy is his preferred one:

"A horizontal company has a high surface to volume ratio. It sells all of its outputs in a competitive market. It is free to buy all its inputs in a competitive market. Its managers are not isolated from the markets they compete in. A vertical company spends most of its time and energy dealing with itself rather than the external market. Meetings are dominated by esoterica like transfer pricing between divisions because this is what determines internal success. The real marketplace is distant from most of the managers trapped inside the vertical structure. Buy vs. build and capital allocation decisions inside a vertical company are made by office politics in a vain attempt to optimize across the whole vertical organization. Horizontal competitors optimize only for the layer they are competing in and so end up being superior to the vertically integrated company layer by layer."

Read it all! - This is definitely a great insight.

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The search for growth opportunities is getting to be difficult, since mobile operators in some regions such as Western Europe are staring at nearly 90% penetration rate. In North America, the take rate of cellular phones is in the 50-60% range, so the market is not quite as saturated, but the growth prospects are not as bright as they once were.

Increasingly, wireless service providers are seeking to make investments in emerging markets such as Asia/Pacific (penetration in the mid teens), Caribbean and Latin America (penetration at about 20 percent) or Eastern Europe (penetration moving closer to 40%). Take Norway’s Telenor, for instance, which has been that country’s incumbent for nearly 150 years. Faced with a domestic market that was nearly tapped out, Telenor started taking ownership positions in a few foreign operators in countries such as Bangladesh, Pakistan, Russia and Ukraine.

The Pakistani fully owned subsidiary is expected to be launched in April, and there is optimism about the success of that operation, given the low penetration in the region (less than 5%). In Russia’s case, Telenor only owns a 30% stake at Vimpelcom, but the future is looking bright, considering the nearly 8.5 million net adds registered for the entire Russian market last December, which represents more new customers than what all Chinese operators gained during the same period. These foreign investments catapulted Telenor to the 12th spot in the world, with an installed base of around 50 million subs and roughly 19 million net adds in 2004.

Of course, closer to home Cingular prevailed over Vodafone in the AT&T Wireless stakes, thanks to a last-minute bid that triggered a late night board meeting (the idea being not to give Vodafone a chance to up the ante because of the time zone difference).  But after a few so-so investments in regions such as Brazil, are American operators ready to take the plunge again and try their luck with emerging markets?

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There was a flurry of WiMax events last week, which definitely were positive for a wider uptake of the technology. WiMax got quite a bit of attention at 3GSM, partly because of the high throughputs it can offer (15 Mbps, which is comparable to HSDPA). Despite that, most of the talks focused on WiMax as an alternative for fixed line broadband, emphasizing that the opportunities lie mostly in rural markets (with WiMax being used instead of ADSL buildouts). Here are a few announcements:

- Alcatel and Intel announced that they will jointly develop WiMax products based on the WiMax mobile spec (IEEE 802.16e) in mid-2006.  Alcatel already sells fixed WiMax (802.16d) products from Alvarion.  Alcatel plans to price the technology to consumers somewhere between DSL and 3G.

- T-Mobile introduced WiMax net access for UK trains, relying on the technology as a way to uplink to the Internet.  WiMax allows T-Mobile users with Wi-Fi access to get Internet access on the go by sharing the 32 Mbps WiMax connection, which should be plenty for a large number of concurrent riders. 

- In Malaysia, a number of equipment manufacturers are already trialing handsets that use mobile WiMax and other new wireless technologies, with commercial launches expected within less than year.

- Cisco is paying more attention to WiMax

- Sprint has joined the WiMax Forum

- DirectNet (leading Brazilian ISP) ordered WiMax gear from Alvarion totaling $1 million over the last few months.

Hopefully, some of the WiMax skeptics will start seeing the glass half full rather than half empty

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Cannes certainly is a very charming setting and has gained a lot of acclaim with events such as the famous Cannes Film Festival or the Formula One Grand Prix in nearby Monaco. But the overall consensus was throughout the 3GSM show was that the French Riviera town is a bit stretched to the limit of its current resources to host a conference of this magnitude. So next year, the host city will be Barcelona, although by 2007, the show could be back in Cannes, when the Palais de Congress is expected to be ready (reportedly, it will undergo some renovations geared towards increasing its capacity). Of course, some analysts will miss being briefed on yachts, or conference rooms of classy hotels such as the Majestic or the Carlton Intercontinental.  But the reality is that, given the 35,000 attendants, the current floor space is tight, whereas the infrastructure needs some upgrades or capacity expansions.   more »

One strong indicator of a rebound in the telecom sector has been the wider attendance in the traditional big annual events, and 3GSM is no exception to that trend. This year’s audience has been one of the biggest over the past few years, with quite a few notable developments, including, among others:

- gizmos galore: lots of mobile handsets that I have never seen on the other side of the Atlantic, including the introductions of a variety of new phone models.  There have been a few new models introduced, including Motorola's impressive slim black Razr.

- Microsoft made a full court press with its wireless initiatives in the enterprise and carrier spaces.  The Peabody is a new GSM/GPRS low-cost platform based on the Windows Mobile software.  Although Microsoft finally overtook Palm in the handheld market, the mobile phone market still remains an elusive target.  The company claimed that Microsoft Windows Mobile-based devices are capable of yielding a higher jump in ARPU than its competitors (37% higher).  On the enterprise front, Microsoft secured another ActiveSync licensing agreement, this time with Nokia, which joins Motorola and palmOne.  Microsoft also added Flextronics to its Smartphone ecosystem. 

- the IMS (IP Multimedia Subsystem) architecture is being covered in several sessions, including Convedia co-founder Grant Henderson’s talk today (Convedia is a key IMS enabler, being the de-facto leader in media servers).  IMS is a framework that provides a SIP-based control layer with open interfaces to the transport layer below and the services layer above. This will allow wireline, wireless and cable operators control over services on a per-session basis. Even though the original IMS concept was originally defined as a 3GPP specification, the IETF also is developing the standard, and even CableLabs is incorporating the IMS concept into its planning.

The pace has been quite hectic today, and considering that Monday is supposedly a "slow" day at 3GSM, perhaps this is indicative of many more new product launches and announcements to come.

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Nortel (NYSE:NT) and Research in Motion (Nasdaq:RIMM) signed an agreement under which BlackBerry devices will have added VoIP capabilities via Wi-Fi.  This will require a tight integration between RIM's BlackBerry enterprise platform and Nortel's CSE 5100 multimedia server.  As announced at VoiceCon 2005, the first model to incorporate this feature will be the BlackBerry 7270, albeit it will be a VoIP-only device (to be used not only in enterprises, but also over public WLAN hotsports).  However, the future is really all about seamless roaming, so the market is IMHO ready for a dual mode BlackBerry that could function in 2.5/3G mode or in Wi-Fi/WLAN mode. 

Note: RIM also signed a similar partnership deal with 3Com, which will use its own IP PBX and WLAN switch (licensed from Trapeze).

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Andy Abramson reported on the EU´s recent "light touch" approach in regulating VoIP.  It looks like the folks from Strasbourg are taking a page out of the FCC's book (i.e. the VoIP friendly strategy employed by Chairman Michael Powell).  The key decision driver for the EU is to increase the broadband penetration for all its current members (which currently stands as only 6.5 percent on average for the EU 25).  The idea is to offer new services such as VoIP at more attractive prices by stimulating the competitive environment.  The ruling clearly states in one paragraph:

The Commission favours an EU-wide “light touch” approach to Internet telephony as the best way to encourage competition between internet carriers of telephone traffic and traditional telephone networks. As the market develops, the European Commission intends to ensure, jointly with the national regulators, that throughout the EU, the roll-out of new IP-based services will not be hindered by regulatory hurdles. It is in the interest of Europe’s businesses and citizens that new technologies should be able to flourish and deliver better services at lower cost.

Wouldn't it be nice to see the CRTC follow suit and also establish an equal level playing field in Canada?  Hopefully, if enough regulatory bodies worldwide endorse a similar position, this has a better chance of happening.

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Rodrigo Sepúlveda Schulz (hat tip: Om Malik) reports on the incredible broadband price wars going on in the French market.  For instance, free.Fr offers 20 Mbps service for €29.99, or $1.50 euros per Mb/s a month.  Neuf (subway ad shown to the right) has an 8 Mbps access monthly package for €14.90, whereas Noos (an MSO) offers 10 Mbps for €10 a month. 

So what's behind all this?  Could it all be due to France Telecom's decision to "be all it can be" (to borrow the catch phrase for US Army recruitment)?  France Telecom (FT) opted to offer the maximum throughput available on all ADSL lines in France, having pretty much reached an almost universal plateau of 6 megs to the majority of its customers last year.  This is in sharp contrast to its neighboring incumbents (BT and Deutsche Telekom), that are still engaged in limiting their DSL data rates.  FT's DSL penetration is roughly 90 percent and is expected to grow over 95 percent this year.  Also, this year, ADSL 2+ will be deployed and speeds will go up to 16 Mbps (pretty amazing).

But despite all that progress, Rodrigo wonders whether or not these service providers are committing harakiri in dropping rates so low that even costs are no longer covered.  I am drooling thinking "what if" Bell Sympatico and Rogers could ever offer us such value (dream on).  But what will the French net citizens do with so much bandwidth?  That's a pretty valid question.  HDTV is roughly 19 Mbps, and one of the highest riders.  Perhaps video conferencing? 

What if Vonage were to offer a three-way conference calling service in France and call it "Vonage à Trois"?  Are you laughing?  It certainly would not be beyond the realm of possibility.  Mark Evans reported on a poll that Vonage Canada conducted with the help of Decima Research, geared towards finding out who people would want to engage in phone sex with.  The result?  Brad Pitt (the top choice for the ladies) and Angelina Jolie (the top gentlemen's pick).  This is all a part of a branding campaign launched just in time before Valentine's Day.

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Despite some gloomy forecasts out there about the wireline capex impact of the fusion between SBC and AT&T, there will be also a few opportunities to be had.  Management's guidance was that there is little impact in capex plans for 2005 and that there will be some savings of 3% of their total budgets (roughly $200 million).  It is debatable whether or not those will hold true, but the fact remains that AT&T (NYSE:T) and SBC (NYSE:SBC) mostly have a non-overlapping footprint (with the exception of some of AT&T's metro networks). 

From a TDM switching perspective, the legacy Lucent and Nortel Class 4 and 5 switches will stay in the SBC network until either their useful lifetime expires or there is a real compelling business case for migration to IP.  SBC has been evaluating softswitches from Alcatel, Nortel and Sonus for quite sometime, and there are some rumors that Nortel might have a slight edge over its competitors.  While SBC has been slow out of the gate in replacing its Class 5 infrastructure (when compared to Verizon), it could be conceivable that the new SBC might accelerate those plans, particularly considering the IP-centric nature of AT&T's core.

On the AT&T side, a capacity upgrade of the backbone might become necessary to support the extra SBC traffic, with such a deal being pegged at a quarter of a billion dollars.  The usual DWDM suspects will be in the running for such an RFP when it is announced, including Lucent and Siemens.  It is also likely that AT&T will develop some video infrastructure to support the offering of triple play services.

Regardless of the above-mentioned opportunities, it is true that historically, carrier consolidation disrupts vendor sales.  At the end of the day, a vendor like Cisco might sell less IP gear because SBC might no longer have to build its backbone on a nationwide scale.  But the flip side of that argument is that if carriers are integrating networks, this might accelerate the migration to an IP infrastructure. Also, the pursuit of synergies might lead a carrier like SBC/AT&T to pursue a newer architecture such as IMS (IP Multimedia subsystems).

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Tyler Hamilton writes about the imminent launch of Virgin Mobile Canada (around March 1). He believes that the clues are manifold: Sir Richard Branson (the flamboyant multi-millionaire) is coming to Toronto to participate in an upcoming Canadian Club lunch event (in March), more front-line sales activity and perhaps the fact that there is no longer a low-entry option for the young, consumer market segment, now that Rogers killed the old City Fido plan, so what better time than to grab those customers.  Coincidentally, Virgin will go after that exact same clientele that Fido once did (before it got neutered).  Which makes one wonder why Virgin and Bell could not have made a stronger play for Microcell after the initial low-ball offer from Telus?  Granted, it was a different network, but it would have gotten Bell a piece of the GSM action, something which Virgin Mobile is quite familiar with.  Besides, just having the same infrastructure will not eliminate other headaches such as OSS/billing integration, etc.

So here is some hope that the entrance of Virgin might shake up this otherwise oligopolistic market - although to follow the musical thread from the previous post, I would not even hold out as much hope for that, slapping on an andante tempo on cellular price drops... (the reason being that Virgin will rely on Bell Mobility's network).

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Characterizing the market development of VoIP and the overall adoption of the technology can be tricky sometimes: one has to take the good news items and the bad ones and then try to see how they fit within the big picture.  There are many people drinking the VoIP Kool Aid and believing that the Class 5 switch to softswitch migration can take place within five years or that the entire enterprise installed TDM PBX base can migrate to IP PBXs by 2006. History shows that these transitions take far more time (witness how long it took for switches like the DMS to be deployed worldwide or how long the "digital PBX revolution" took). 

Despite that, there has been an incredible amount of optimism within the VoIP industry particularly during the past year (witness the great increase in attendance of conferences such as VON, Internet Telephony, and VoiceCon).  Perhaps the best way to temper some of these high expectations is to use a musical term: allegro ma non troppo.  This Italian tempo marking literally means "quick but not too quick".

Here are a couple of examples that suggest that VoIP's tempo is definitely not the presto that some are suggesting.  Om Malik wrote in his blog about a Forrester survey that found that only 13% of consumers were "interested" or "very interested" in VoIP.  Furthermore, that interest only goes up when consumers have a tangible benefit such as savings.  And, closer to home, Mark Evans mentions a Pollara survey that suggests that only 9% of Canadian Internet users would buy Internet service if it were priced at $20 per month.

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While voice and data convergence in the enterprise has been considerably refined in the past three years, very few vendors have put much thought behind convergence of devices. There has been a lot of emphasis put on the so-called softphones, which are CTI (Computer Telephony Integration) applications that can run on PCs and provide end-users with a rich set of functions.

While the softphone has been labeled as the “desktop of the future”, that goal has remained quite elusive as most vendors did not understand that these applications should ideally work with desktop phones and not necessarily replace them (except perhaps for special cases such as traveling salesmen who can load them up on their laptops and take them on the road). Business cases were made for the IP softphones to replace IP hard phones, but nobody figured a way to get more functionality of a desktop phone via a complementary CTI application that worked in conjunction with that desk terminal.

Enterprise telephony equipment vendors have struggled to understand that end-users typically prefer an interface that is not overly complex and with which they are already familiar with rather than something overly complex. A sophisticated IP phone with color displays and web browsing functions sitting right next to a PC is just an expensive toy that will hardly be used for these functions (the PC is just as capable for viewing some web sites). Of course, that same phone in a different setting (such as an airport lounge or a hotel room, where a PC is not readily available) would have an entirely different appeal and value proposition, but why settle for only niche opportunities?

Another forgotten point was human factors. How many vendors out there are selling softphones that have pictures of phones on the screen? How bad is that? Instead of taking advantage of an environment that is as rich as a PC, with nice GUI gizmos such as dialog boxes, dropdown menus, radio buttons, etc., let’s just go back to the same old 12-button desktop phone interface and emulate that on a PC.

This is why it was so refreshing to see innovative products such as Mitel’s Navigator, which was announced today at BCR’s VoiceCon conference in Orlando.  Mitel has brought a new form factor to the world of IP telephony: a phone bar that can deliver powerful functionality via a tightly knit interface to the PC world. This allows Navigator to work in conjunction with applications such as Mitel’s YourAssistant (YA) and environments such as Microsoft’s Live Communications Server. The new ergonomic design saves desktop space, is very intuitive to use and allows users to define their own functions via 9 programmable keys. These buttons can invoke PC applications, telephony functions or commands. Navigator also supports SIP and hands-free calling, but the key differentiator is the rich suite of functions that YA can deliver, including collaboration, instant messaging, presence and video. Users can drag and drop a few contacts on a container and initiate an impromptu conference call on Navigator via just a click of a button. The end result is pretty compelling: a phone with an innovative form factor that is easy to use, yet that can deliver a lot of powerful functions via PC client applications.

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Much has been written about WiMax recently, and most of it hasn't been very promising.  First, in a Wi-Fi Networking News article from November of last year (authored by Glenn Fleishman and quoting Robert Berger extensively) stirred quite a lot of chatter within the blogsphere (it is January and I am still getting the link in some e-mails from my friends in the wireless industry).  Perhaps Berger comes out looking like a bit of a WiMax basher when he said that WiMax is "another zero billion dollar industry" with "no products". 

Of course, we know that not to be the case (just as an example, documented right here on TF was Alvarion's win with Altitude Telecom in France last year). Also, despite the fact that Intel hasn't started shipping out the Rosedale chip just yet, that does not mean that there are "no products" in the marketplace.  For instance, Redline Communications (just up the road from where I work) already has had products on the marketplace for quite sometime, lining up over 5,000 installations and 60 countries (granted, Redline was the first one to introduce an 802.16 compliant product).  Other independent chipset manufacturers (Sequans and WaveSat) already have silicon sampling (still seeking to achieve 802.16 certification) with big customers. 

But more naysayers (such as Om Malik) pointed out delays in the WiMax certification process, and how those are tied to a lack of chips from Intel.  No doubt about it, until Intel actually starts to back its own plans with actions instead of words, the industry will not take off as fast.  It is hard to argue against that.  I have also pointed out a few other restraints in a previous note (including the reluctance of carriers to deploy anything in unlicensed frequency bands).  Of course, the merger action has not helped (Sprint and Nextel now are the only holders of such spectrum, and the new AT&T plus SBC might not be as interested to pursue its WiMax strategy, considering the huge Cingular/AT&T Wireless network it can now leverage).  Another huge factor that not too many people are writing about are the challenges in the IEEE 802.16e subgroup, as it tries to define mobility specs for WiMax (the ratification of 802.16e will still take time, probably at least until the latter part of this year).

So does that all mean that WiMax, as it was originally hyped up ("the broadband wireless standard of the future"), is dead?  Is it just a glorified backhaul access technology?  Of course not.  In answering that question, it is important to get quite a few points across first:

1- Check the history of 802.11 and how much time it took for the standard to develop and mature.  Why are people getting so impatient with WiMax, and declaring it "dead on arrival"?

2- 802.11 is not the answer to nomadic broadband access over a wide area.  WiFi really was geared towards the enterprise LAN space, the home consumer market, or public operation in confined areas (e.g. your local Starbucks or an airport lounge).  By contrast, WiMax is a MAN-type solution that 802.11 really was never geared to be.  That's why the way I view WiMax is more complementary than competing against WiFi.   

3- For greenfields (e.g. broadband for developing countries), WiMax can be deployed much quicker than ADSL or broadband cable, and the CPE costs should be pretty comparable in the future (circa 2007-2008).  This point needs to be understood - "emerging markets" want to get to progress by taking the quantum leap, rather than evolving the networks following the same footsteps of our telcos.  Just like there was a good correlation between GDP growth and teledensity, there must be another similar relationship between GDP growth and broadband access.  These emerging markets want to make that transition and increase the penetration of broadband as soon as possible.  And the people in these countries want that progress to be achieved quickly, too.  Just think of all the color TVs inside the favelas (shantytowns) in Rio.  Therefore, there is still ample time and opportunity for WiMax to really flourish in these areas.

4- Even in countries like the U.S., in competing against DSL and cable, WiMax still has one key differentiator: nomadic access.   Of course, WiFi can also offer that, but not with such a long reach.  Therefore, WiMax could find a beachhead with alternative carriers and mobile operators.  Plus, WiMax can also serve to extend ADSL networks into rural areas, for instance.  No doubt about it, WiMax will face competition from other fixed wireless technologies, but here is where the marketing machine of vendors such as Intel comes into play.

Other industry catalysts include a partnership between a next-gen carrier offering WiMax and an electric utility.  In such a partnership, the utility would act as a landlord, and lease its feeder networks as a backhaul access to the wireless broadband service provider.  Maybe some of these next-gen operators can also work out cheap access with localized, targeted advertising on a WiMax client device (the ads would change dynamically, depending on the region of a city that the user is).  

Bottom line is WiMax still is a nascent industry, but there is still time for it to develop as something more than just backhaul access.  Costs will come down, as vendors such as Intel and Fujitsu further refine their 802.16 chips.  As the standard gets solidified more high-volume low-cost manufacturers will be attracted to WiMax. 

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Nortel (NYSE:NT) announced today its 1H 2004 restatements, without revealing any major surprises.  The 1Q EPS of 2 cents was higher than the break-even estimates of some Wall Street analysts, mostly due to margins that came out just a bit higher and a bigger chunk of forex income.  However, the Q2 results were a tad lower than expected due to forex losses.  Nortel still has to produce the 2H 2004 numbers, which will be filed as soon as it is "practicable".

The good news is that some of the overhang is beginning to lift from Nortel, and the "new" CFO (Peter Currie, who was Royal Bank of Canada's CFO until last September) was well received by Bay Street (coincidentally, Peter was NT's CFO from 1994-97).

I got some mail yesterday regarding my Verizon VoIP build article.  Of course, despite the fact that this particular deployment has not met some pretty lofty expectations, it was still a big win for Nortel in a key Lucent account.  In fact, it showed that Nortel was ahead of Lucent in softswitches at that point (and in fact, Lucent ended up buying Telica to catch up).  Perhaps it is time to acknowledge John Roth's famous "right angle turn" that emphasized the development of IP technologies.

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A bit more than a year after Nortel announced its landmark deal with Verizon, the reality is that the RBOC only replaced between 5 to 10 of its Class 5 switches, which represents less than 1% of its total Class 5 switches in service (2,500).  This result is not surprising.  I recommended a lot of caution right from the early going.  I recall using a hockey game analogy in an interview I had at about the same time last year.  It was just the first period, and Nortel had just scored a goal, I said.  But it was still early. 

Also, while a couple of legacy Lucent switches were replaced, at such a low pace, it would seem that Lucent was able to just about maintain its share of the Verizon Class 5 installed base, with the other replacements being older Nortel DMS switches.  Since Nortel's exclusivity expires in July of this year, Lucent will still be given a few chances to get a significant portion of the replacement opportunity.  This just goes to show that, despite the initial Nortel win, it is still very hard to replace the incumbent, and in the worst case scenario, Lucent will still be the secondary supplier.  So expect that the months following July will be a good acid test for the recently acquired Telica softswitch (company acquired on May 2004 for $295 million).

Verizon's own Class 5 VoIP plan called for a an agressive 5 to 6 year deployment, but right now, a more likely scenario would be a 5 to 10 year exercise, with a rough annual spend of $100 to $200 million.  But that is assuming that Verizon will stick to its original allocated capex for class 5 switch replacement of roughly $1 billion.  And that other high priority items (e.g. FTTH project, IMS, etc.) will not draw more resources.  Those are two big ifs.  Nothing but a big dose of reality for those engaged in a bit of "irrational exuberance". 

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With all the talk about how the RBOCs should start building out fiber-based video networks instead of relying on the satellite approach, one would think that the fiber deployments should be happening in full force in 2005. Verizon (NYSE:VZ) is favoring a FTTP (Fiber To The Premises) strategy, whereas SBC (NYSE:SBC) and others are more inclined to a FTTN (Fiber To The Node) approach.

No doubt that FTTN is the "quick fix" method, being faster and cheaper, however there are risks (i.e. is there sufficient bandwidth for when the loop length exceeds a certain threshold, or for HDTV). Also, the standards issues persist (VDSL or ADSL2+?) and then, there is also the question of the cost and availability of the set top boxes. 

FTTP is slower, and entails a higher upfront cost, but it should give Verizon the best network asset among its peers.  But the buildout will be slow, as Verizon plans to launch FTTH to 10 million homes over the next five years. 

SBC's Project Lightspeed is highly ambitious in terms of their video share gain assumptions, which call for a higher portion of the pie than what DBS players get today.  But their roll-out pace, opex and capex estimates presented in November of last year look reasonable.  However, despite the fact that these numbers were well received by Wall Street, some naysayers still point to past experiences as the best predictor of how long this deployment will take (who remembers Project Pronto?).

Another factor that might definitely dampen the RBOCs pace of fiber deployment is the potential SBC and AT&T merger.  Om Malik highlights a Merrill Lynch report that should the deal close, US wireline CAPEX might decrease by 10% (or roughly US$ 2 billion).  The SBC and AT&T were planning to spend about $7 billion of wireline capex this year, but a combined organization would mean a shrinkage of 30% (or $2.1 billion).  Of course, some of this reduction might also trickle down to Project Lightspeed, as SBC focuses on integrating the AT&T network.  In such a scenario, it remains to be seen whether or not Verizon, after seeing a combined SBC/AT&T spending less, will also follow suit.

Regardless, the MSOs will have a significant time-to-market advantage in bundling voice service versus the RBOCs in bundling video with their fiber buildouts.

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Looks like Jeff Pulver has done it again.  After his very first FWD (Free World Dialup) back in the mid 90's (with Vocaltec's Internet Phone, a program which I was lucky to get a free license for, as a thank you for being one of the original beta testers), his second one FWD launched in 2002 (courtesy of a SIP registrar), Jeff now has topped himself again by having a new service called Bellster (maybe a wordplay meaning how to get Bell service the Napster way - i.e. for free).

Bellster is essentially a P2P (Peer To Peer) service that enables users to share their phone lines to make "free" calls anywhere within the reach of the global PSTN network.  The system does not provide actual PSTN access, but it assists a user to find other users sharing their lines via Asterisk (please see photo to the left), an open-source PBX (believe it or not, for an open source PBX, Asterisk has quite a decent list of features that is growing over time - it has been impressive to see this grow over time). 

Callers can call any phone number in the world by sending the call via Internet to a shared phone line near the person that is being called.  That is pretty similar to the very first FWD, except for certain rules.  The system is setup based on a "social rules arbitrage" code.  In other words, users have to earn credits before being able to make these free calls, and these credits are directly proportional to the amount and duration of calls that users allow to move over their private lines.  Jeff Pulver already listed in this blog the countries that are currently supported by Bellster, and the list includes the US, Canada, Russia, France, Italy, the UK, Germany, Argentina and Brazil, among others.

So what is the catch?  For one, the investment in the Asterisk PBX ($1,030, quite a steep initial investment to make supposedly "free" calls - a payback period of more than 20 months for someone making $50 worth of calls per month).  The second possible deterrent is privacy.  Because the call goes through the Internet, there could be very little in the way of assurances of a secure call.  Hence, security could be a major concern.  But still, this is cutting edge in that calls can be made from a PC to a phone anywhere else in the world.  It is also a service that is growing quite fast, with the recent tally showing 22 countries available and 487 nodes registered across them.

Update (26/01): Another issue that I forgot to mention is the cost of local calls in some regions.  For instance, in South America and Europe, each local call costs (taking Brazil as an example, each local call during business hours costs an "impulse" for the first few minutes, and then additional ones after that, much like a pay phone in the US; the story changes during the evenings and weekends when each call is one impulse, no matter how long it is).  These costs would be billed to the local user, so obviously there is an imbalance there versus in North America (US and Canada), where users can make unlimitted local calls paying the same monthly flat fee.  That said, on the plus side, the receiving end does not need to have a computer or any broadband access (in case someone wants to call their grandma who is not a computer user).

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It came as a surprise to some, but FCC Chairman Michael Powell has called it quits, announcing his resignation from the post this past Friday. I had been made aware of this event late Thursday night, but was under a "friendly NDA" from one of my insider sources and Friday at 6:43 AM, the Wall Street Journal was the first to break the news, when one could see the following story on the online version (requires a subscription).  "You read it here first," the story read, "FCC Chairman Michael Powell will resign today."  Here are a few other interesting insights from Jeff Pulver, Om Malik, and The Economist. 

Undoubtedly, VoIP is losing one of its biggest allies, who fought innumerous battles inside and outside the Beltway to sustain the free market concept, and recognizing its powers over politics, centralized planning or regulation.  Powell saw the benefits of allowing a nascent VoIP industry a chance to grow, instead of killing it before it was born, and he deserves a lot of credit for that, particularly considering his stance was new and refreshing for someone representing a regulatory body such as the FCC.

There are a lot of folks rumored to be in the running to replace Powell, as reported in Light Reading or Greg Galitzine's TMCNet VoIP blog.  Regardless of who replaces him, he will be really missed.  I certainly hope that Powell's successor will continue following his consumer empowerment steps, and recognizing the following freedoms (so eloquently written in Jeff Pulver's blog entry):

• the right to access the content and applications of their choice
• the right to attach the personal devices of their choice
• the right to service plan information

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There have been quite a few rumors about a possible takeover of Canadian high-tech star Research In Motion (Nasdaq:RIMM).  RIM, the makers of the popular Blackberry device, has been rumored to be taken, due to the success of the product, which has reached an impressive installed base of over 2 million users.  In a Goldman Sachs report, RIM was called "a very attractive acquisition", with possible suitors such as Nokia or Motorola being mentioned.  The new Blackberry 7100 series is being regarded as one of the key catalysts for growth this year, because of its form factor (looks more like a cell phone, it is slim, has a color display and only weighs 122 grams).  RIM has been relying on licensing its software to rival hardware makers in order to compete against the likes of Extended Systems or Good Technology.  Goldman believes RIM will be able to add between 20 to 30 new carrier customers this year.

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Cisco (Nasdaq:CSCO) confirmed rumors of making another acquisition in the WLAN space after making public this past Tuesday its acquisition of startup Airespace.  This is yet another company that Cisco has purchased in this space (other notables in the past included Aironet, bought in 1999, and Linksys, acquired in 2003).  Aironet solidified Cisco's entrance in the enterprise WLAN arena, while Linksys gave the San Jose-based company a solid position in the consumer/SOHO WLAN market.  However, the acquisition of Airespace definitely indicates that Cisco finally turned the page on the "fat" AP (Access Point) model (the architecture used by its Aironet solution), and the company seems to now be finally ready to embrace the centralized WLAN switch architecture which has become the industry standard.

The rationale for the new "thin" AP approach is the centralization of the network management function, responsible for tasks such as compensation for failing APs, surveillance of possible rogue access points, load balancing of the traffic between AP, and other functions such as authentication and encryption. Another consideration was that centralizing these functions at the switch translates into cost savings for enterprises deploying large, ubiquitous WLANs.

The key developments to watch following the deal are:

1- Disruption in the WLAN plans of Airespace OEM partners (including Alcatel, NEC and Nortel): we have seen the same disruption before in the UM space, when Cisco bought the Unity portion of Active Voice, and the havoc that caused to Unity OEM partners such as Alcatel and Siemens.

2- Impact to the Cisco product lineup: early indications are that Cisco will continue supporting its newer WLAN switch (SWAN strategy with the WLSM blade for the Catalyst switches) and the Airespace product lines.  But the latter solution is much broader and easier to use.

3- With Siemens' acquisition of Chantry Networks late last year and Cisco's purchase of Airespace, who is next?  The WLAN space still has a few innovative startup players that are left, some of which could be potential targets, including the like of Aruba Networks, Meru Networks, Strix Systems, and Trapeze Networks.  Could one of them be snapped up by any of the Cisco rivals that had partnered with Airespace in the past?  If so, what would be the multiples involved?  Stay tuned... there will be more acquisitions in this space happening this year.

4- Other ramifications: Om Malik points out something interesting in his blog, namely that Airespace's relationship with PoE (Power over Ethernet) mind share leader PowerDsine might finally help the Israeli company to establish stronger ties with Cisco.

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The National Post had a good editorial today, peppered with some interesting comments about the cellular service gap between the U.S. and Canada. Surely, the wireline story this side of the border is good - here in Canada we enjoy good, reliable service at very reasonable rates.  But on the wireless front, the story is totally different.  Currently, we only have three options as far as mobile operators are concerned: Bell Mobility (NYSE:BCE), Rogers Wireless (NYSE:RCN) and Telus (NYSE:TU).  

The editorial made some fine points (I suspect that both techie reporters from the National Post - Mark Evans and Kevin Restivo contributed to the article).  One of the main themes was the fact that the Canadian wireless market is in fact more of an oligopoly in comparison to the highly competitive U.S. mobile communications environment.  One of the reasons mentioned was the fact that Canada is in fact a small market, so the subscribers up here do not benefit from the highly competitive pressures of other markets such as the U.S., Europe and Asia/Pacific.  As a result, features are lacking and prices tend to be higher. 

One example that I can mention is voice mail: all major U.S. wireless operators offer voice mail for free for any customer signing a two or three year plan.  By contrast, in Canada, all long-term deals from Bell, Telus or Rogers only offer free voice mail for a few months, and after that, users have to pay a monthly fee for the service (usually in the $3 to $4 range). 

The article's example is pretty compelling - Cingular Wireless' offering of 1,000 "anytime" minutes for US$39.99 a month, including long-distance, within the continental U.S. simply cannot be matched in Canada, with the closest deal being $35 per month for 310 local minutes during peak business hours and unlimited evening and weekend calling, with extra charges applying for long distance. 

Other differences in the Canadian versus U.S. plans include billing (per minute versus per second billing) and the lack of "rollover" minutes (in the U.S. unused minutes from one month could be added to the next month).  Another factor that reduces the competitive pressures in Canada is the lack of Wireless Number Portability (WNP).  Americans can switch their mobile carriers without needing to change their cellular numbers.  Canadian operators, fearing that WNP would allow subscribers to lower their fees by playing one company off against others, have thus far not offered this important feature.  

From my own perspective, I can also add a few insights on this subject.  First, Rogers' acquisition of Microcell effectively took out the most price competitive offering in the marketplace.  Rogers (which beat out Telus on that acquisition) claims that it will keep the Fido brand, but obviously, it will not keep the Fido prices (note that the CP story was picked up by the Telus site).  So the only other alternative player that might offer slightly more competitive prices could potentially be Virgin Mobile, although relying on the Bell network might leave Virgin little room to maneuver its price.

Second, from my personal experience, it seems that Canadian operators seem to offer new customers better deals than their existing ones - which is interesting, given the low churn rates of our wireless industry.  Case in point: my own contract with Bell Mobility recently expired, and I had gotten a very tempting offer from Rogers, but in the end, after some negotiating and "social engineering" with the Bell call center agent, she matched the deal and I stayed with Bell (the tie breaker being the "one bill" bundle).  Contract expiry time seems to be the only time when subscribers get a bit of leverage to negotiate better deals.  But VM still costs me an extra $4 per month...

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So the Sprint (NYSE:FON) and Nextel (Nasdaq:NXTL) merger was concluded after all the speculation and some naysayers claiming that elements such as the disparate networks of both operators would make a fusion practically impossible.  The new merged company will have about 40 million subscribers, compared to 47 million subs from Cingular, the industry leader.  In the deal (called "a merger of equals"), Sprint (the number 3 wireless operator) is purchasing Nextel (the number 5 wireless carrier) in exchange for stock and cash.

As part of the fallout of the deal, there has been some speculation that Motorola (NYSE:MOT) would lose its privileged monopoly status with Nextel.  This is because Sprint's 20.1 million customers rely on CDMA technology, whereas Nextel's 15.3 million subscribers belong to iDEN (Integrated Digital Enhanced Network), a network based on Motorola's digital radio technology.

However, Sprint Nextel management claimed that it plans to continue investing in the iDEN network through 2007. Therefore, based on that, there does not seem to be likely for there to be an impact to Moto's short term bottom line, particularly given the fact that the deal is not expected to be finalized at least until late 2005. Moreover, there is the push to provide dual-mode iDEN/EV-DO phones to the new company.  Despite that, the margins for these dual mode phones are not expected to be as attractive, particularly due to the CDMA royalties on the handsets and the high level of complexity in such dual mode devices. 

Motorola will have a challenge in trying to get additional CDMA cell phone business at Sprint.  For one thing, the competition will be tough: Samsung and Sanyo have a good penetration at Sprint, whereas LG is apparently the only vendor that seems to be gaining some better traction. 

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Last week, the U.S. Supreme Court agreed to review an Appeals Court ruling that can potentially force cable companies to give third-party ISPs access to their networks.  In October of 2003, the U.S. Court of Appeals for the 9th Circuit in San Francisco held that MSOs should allow competing Internet Service Providers on their broadband networks.  This ruling went against the FCC opinion made public in March 2002 - namely, that cable operators should not be regulated as telecom carriers, since High Speed Internet (HSI) over cable was just an "information service" that is different than a telecom service.

As a result of the FCC's classification, the MSOs would not be forced to share their networks with other ISPs (an obligation that they would need to comply with should HSI be ruled a "telecommunications service").  That was the de-facto standard until Brand X, a Santa Monica ISP challenged the FCC view in court, which eventually lead to the appeals court decision last October. 

The FCC and NCTA were granted a stay of the court decision pending a request of the Supreme Court to hear the case.  MSOs have in fact resisted the telecom service notion of "open access" for a long time, claiming that it would create a lot of constraints to the industry due to new regulation, and create technical issues. 

One interesting point about this case is that the courts often seek the advice of expert agencies when pondering upon complex policy nuances such as the current telecom versus information service debate.  But the Appeals Court in San Francisco chose its own interpretation rather than deferring the decision to the FCC. 

It will be interesting to see how the Supreme Court will rule - just because it agreed to review the case, that does not imply that it cannot remand the case to the FCC for further clarification.  The FCC has been deliberating on the regulatory issue of how to classify VoIP for years, and thus far, it chose a rather friendly stance, in order to help the industry flourish.  The oral arguments are set to begin on March 23rd, 2005, with a ruling anticipated before the Supreme Court recess in June.

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Of course no sooner than the issue of Philadelphia's mega-WLAN deployment was discussed here, Verizon changed its initial position in support of the controversial House Bill 30, and allowed the project to go through (at least for Philly).  The bottom line was that HB 30 was still signed, and the implication of that is that ILECs such as Verizon would have the right to keep local governments from setting up paid services like Philadelphia after January 1st, 2006.

Philly sought assurances from Verizon that the carrier would not fight its WiFi project in the event that its in-service date would not meet the requirements of HB 30.  There are indications that the city believes it will complete the $7-10 million deployment only by June of 2006.  So what's the bottom line?  Other cities in Pennsylvania will only be able to deploy a similar service until the first day of 2006.  After that, the ILEC will get the first rights of refusal (in other words, the local government will have to offer the ILEC the right to provide the service).  This bill will not affect free services.

It is laudable that Verizon allowed the Philly deployment to go through.  But the issue still is that the RBOC will have a first hand say (after the start of 2006) about which service gets deployed in each municipality from its ILEC region.  The fundamental question then becomes: will this law set a precedent that will influence similar projects in cities across the U.S.?

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Amidst the flurry of announcements about the acceleration of Project Lightspeed, the availability of residential VoIP services and the IPTV deal with Microsoft, SBC also publicized its plans about a new offering geared towards VoIP service providers.  Namely, in a filing made on November 24th, SBC made the FCC aware of its TIPToP (True IP to PSTN) service, which enables VoIP providers to connect IP traffic to circuit-switched network through a specially designed interface

This last announcement did not go unnoticed by folks like Jeff Pulver, Om Malik, or groups such as the Internet Innovation Alliance.  So what's the issue?  Well, FCC Chairman Michael Powell, who is known for his VoIP friendly stance, stated:

"Should we conclude that this tariff is being used to justify the imposition of traditional tariffed access charges on VoIP providers or to discriminate against SBC's competitors, the commission will take appropriate action."

Powell already has three decisions to make related to charges applicable to VoIP services.  One of the matters to be resolved is related to intercarrier compensation.  He remains committed to ensuring the commission avoids any action that might slow down the "IP services revolution". 

Even though SBC still has not made the tariff public, there is some concern that offerings such as TIPToP might block some competitors from using the tandem interconnection altogether - making it not a viable option.  These tandem connections allow the LECs (Local Exchange Carriers) to connect with each other.  Some players such as Vonage go through CLECs to tap into the RBOC networks.

SBC is claiming that TIPToP is a voluntary product that should not impact the FCC's ruling on intercarrier payments, and that it has already gotten some interest in the offering.  BellSouth (NYSE:BLS) has already been promoting a similar service since May of 2003 (although BellSouth's service converts the VoIP call into signaling traditional phone networks understand, a more complicated and costly process than what is provided by SBC), whereas Verizon (NYSE:VZ) offers a nationwide VoIP service, but it requires customers to maintain their local main lines with the company, marketing the service as a second-line replacement.

Soon, we will find out where Powell will draw the line.  The key issue is that even as a "voluntary" service, TIPToP can potentially become a back-door way to impose the access charges that were initially rejected by the FCC.

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Business Week had an interesting article today on the advent of XORP (the eXtensible Open Router Platform).  The concept is simple: provide enterprises cheaper and more flexible routers built on commodity hardware and open-source software.  The cheaper hardware comes from microprocessor vendors such as Intel (Nasdaq:INTC), whereas the software would be open-source.  The project has the backing of players such as Microsoft (Nasdaq:MSFT) and the NSF (National Science Foundation).  The first release of XORP came out in July, and more are expected in the future. 

Of course, this is still very much a work in progress, which at this point in time is still far from posing a threat to other router vendors such as Cisco, Extreme or Foundry.  Also, this is not the first attempt to create a software-based router based on open-source code.  But the backing of above-mentioned players lends some level of credibility to this work.  Perhaps another validation comes from the fact that nowadays, even Cisco has a line of low-priced networking gear based on Linux, that targets the pragmatic, cost conscious consumer.

But ultimately, the appeal of XORP is not only the lower cost, but also the level of customization that it empowers end-users with.  These end-users can configure the software to suit their own particular needs and/or applications.  Not only that, the network routing can be embedded as software inside a server or other devices.   

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Back in September, Philadelphia's WiFi plans were discussed here. The ambitious project called for turning the city's entire main core of 135 square miles into the world's largest wireless Internet hot spot.  The plan was to offer inexpensive wireless Internet as a low-cost municipal service, charging end-users less than what is currently charged for DSL or cable broadband. That announcement generated a lot of optimism, since it epitomized the good that a forward-thinking government can deliver to its citizens.

Unfortunately, that did not initially sit well with the commercial interests of the local incumbent phone company, Verizon Communications Inc. (NYSE:VZ).  The RBOC did back House Bill 30 (HB30), a measure that would curb the ability of city governments to provide high-speed Internet access for a fee, effectively making providing a subsidized low-cost service illegal. High tech enthusiasts, activists and users at large are urging legislators and Gov. Rendell to postpone that bill's passage, or perhaps even kill it outright. Governor Rendell has until Nov. 30 to veto the bill or sign it into law.

For that matter, Verizon was not alone in trying to impede these types of deployments.  Other regional and long-distance phone companies (selling broadband Internet to consumers and businesses) have recently increased their efforts to quash similar creative municipal wireless initiatives, in locations such as San Francisco, Chaska (Minn.) and St. Cloud (Fla.).  Verizon has changed its attitude since coming out in support of HB30 and now states unequivocally that it will not block Philadelphia's WiFi plans.

Despite that, the marketplace consensus is that the RBOCs, IXCs and other broadband service providers are crying foul because they argue that a city can raise money via taxes, while a private company must pay interest on borrowed capital.  In the meantime, consumer advocates are claiming that cheap WiFi services fill a void that the operators either cannot or simply have no intention to deliver.  Philly's CIO (Dinah Neff), claims that Philadelphia currently ranks 33rd in the US in terms of availability of wired or wireless connections (less than 60 percent of the city's neighborhoods have the option of subscribing to broadband, either DSL or cable).

The bottom line is that the City of Brotherly Love can still deploy its network (according to this article), as long as it can be operational by January 1, 2006 (the city originally hoped for an in-service date of June 2006). 

But ultimately, the government will have the final say.  If the U.S. is to accelerate its broadband penetration and catch up to leaders such as Korea and Japan, more proactive measures that encourage these types of municipal initiatives are required.  And bills such as HB30 should be shot down, because having a legislature overturn a municipality's ambitious "broadband for all" plan - just for the benefit of a few service providers - does not make sense at all.

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Note: Another couple of good articles on the same thread can be found here (another good insight from MuniWireless.com) and here (WSJ article, so password is required).

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There have not been too many positives for Nortel's stock lately, whose performance has been plagued by the company's ability to get its financial restatements done in a timely fashion.  Because of the delays in reporting the results, Nortel (NYSE:NT) stock has been downgraded by the likes of Prudential, Goldman Sachs, and CIBC World Markets, among others.  

For most shareholders, the delay in the restatements has been an unfortunate development, particularly now that the company is making positive strides on the technology side of the equation.  For instance, in VoIP, Nortel has a leadership position in the Class 5 softswitching market, as reported on Light Reading.  Nortel has also a strong position in the wireless market, having been on the short list for many RFPs for CDMA and UMTS tenders.  Despite all the accounting woes, the company still is able to be at the forefront of cutting edge technologies, such as mesh networking.  And the enterprise IP PBX opportunity should be also a positive development, as the existing installed base begins to mature and starts transitioning from TDM to IP (Nortel has a substantial installed base of TDM equipment - Meridian PBXs and Norstar key systems).

Still, all this progress is not as relevant now, as the company focuses in delivering its results before the end of the year.  The bookkeeping blunders need to end in order for Nortel to avoid the unthinkable: delisting.  For instance, the NYSE listing can come up for formal review unless the vendor can file the restatements by year-end.  The company is working diligently in meeting that deadline.  Mark Evans, the technology reporter for The National Post, found the following gem (John Manley, a board member, offered the following comments on the accounting efforts):

Nov. 23 (Bloomberg) - Nortel Networks Corp. board member John Manley said he's "very optimistic" that the telephone- equipment maker will file a restatement of its financial reports within the 30 to 60 day deadline it set on Nov. 11. The reports that will be prepared for filing by Brampton, Ontario-based Nortel are more than 2,000 pages with over 8,000 numbers, Manley, who joined Nortel's board in May, said in an interview. "People can't work any harder than they are," said Manley, a former deputy prime minister of Canada. "The limiting factor is there's a lot of numbers. Everything has to be right this time. We can't revise them again."

Nortel shareholders hope that John is right and that this time around, all the numbers will be OK.  In the meantime, there was some good news this week.  Nortel claimed (following discussion with the Office of the Chief Accountant at the SEC) that it will not change its accounting treatment for optical product sales. This is good news, since it might be a clue that the restatements will not go back to the years before 2001.  Hence, it could also mean a higher likelihood that the 2001-2003 numbers will be filed within the next six weeks.  The other piece of good news is that Nortel confirmed what some Wall Street analyst firms (such as Solomon Smith Barney) already suspected to be the case: the NYSE will not begin a delisting review process until after December 30th, and Nortel would likely have an additional three month grace period.

So, in conclusion, Nortel would likely not be delisted (in a worst case scenario) until April 1, 2005. Right now, it looks more likely that NT will file at the latest by January 2005, so it should be able to avoid the bleak delisting scenario. All in all, the probability of such an event was decreased with this week's news. Hopefully, after the restatement becomes a reality, past accounting practices will no longer overhang the stock, and investors will finally be able to focus on the company's fundamentals, technology and market performance.

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