Channel Marker

Jul 2 2008   1:00PM GMT

Will Microsoft acquire Nortel?

rivkalittle Rivka Little Profile: rivkalittle

Summertime is the time to mull.

Today I have the time to consider whether Microsoft and Nortel — currently unified communications (UC) partners — will move from heavy dating to marriage.

According to channel partners of both companies, rumors of such an acquisition have been swirling for some time. They say that while an acquisition is not apparent in the near term, none would be surprised to see it happen eventually.

Microsoft and Nortel sparked their relationship in 2006 to join Nortel’s IP voice and PBX with Microsoft’s unified messaging and collaboration platforms.

When they announced their four-year strategic partnership, dubbed the Innovative Communications Alliance, some folks were left scratching their heads. Why would mighty Microsoft choose Nortel? It was clear that Microsoft needed to add the voice element since it was battling Cisco, but Nortel, the 110-year-old telecom company, was hammering out its role in the enterprise market and still had a heavy carrier focus.

“People wonder if Microsoft is going to swallow them up,” said Yankee Group analyst Vanessa Alvarez, adding that it leaves one to wonder if Microsoft will eventually turn Nortel into its “services arm,” providing management for Microsoft’s UC offering and other enterprise voice plays.

But one Nortel and Microsoft partner said adding Nortel to the Microsoft mix was a “no-brainer.” At this point, Nortel is the leading business data competitor to Cisco, the partner said. The duo also makes sense since Nortel is transitioning from being solely an infrastructure company to a software and applications provider. In the meantime, Microsoft is working toward becoming more of a communications company.

The same partner said he didn’t expect an acquisition in the immediate future, but said, “I think it’s a logical move in the future.”

Another partner said, “There is a lot of conjecture about [an acquisition].” And he added that he “would love to see Microsoft buy Nortel” since it would improve Microsoft’s communications play. Relying on Exchange Server 2007 for voicemail has not been easy. “It’s not ready for primetime,” he said. Incorporating Nortel’s technology into Microsoft’s basic business offerings would improve that.

Still there would be drawbacks for the channel if such a merger materialized. Microsoft notoriously has smaller returns for partners than Nortel. One partner said, “I don’t know why Microsoft would want to play into that game.” The truth is, Microsoft doesn’t have to. Its partners are plentiful and are often about volume. The Nortel channel is another story.

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