Avaya-Nortel: The Pushback

Any big combination, whether it's a merger or an acquisition, is tough to pull off--tough, but not impossible.

Eric Krapf

September 2, 2009

3 Min Read
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As we count down to the September 11 bankruptcy court auction that will determine the buyer of Nortel Enterprise Solutions, No Jitter recently ran a compelling and controversial writeup from an industry observer arguing against the likelihood of a successful combination should Avaya capture Nortel in the auction. The piece drew quite a few detailed and insightful comments, as well as at least one point-by-point rebuttal on another blog.The next issue that bubbled up around the deal had to do with whether it should even pass anti-trust muster. Opponents of the deal asserted that if Avaya got its hands on Nortel, the result would be an Avaya-Cisco duopoly controlling as much as 75% of the market. My conclusion was that the business communications equipment market as a whole would not be unacceptably concentrated by such an acquisition, but Allan Sulkin and others have made the legitimate point that the North American high-end enterprise market-the very largest systems-almost surely would be heavily dominated by Avaya and Cisco, Which they pretty much are already, even without Avaya acquiring Nortel.

This issue hangs on the question of how you regulate market concentration in rapidly evolving markets. Avaya and Cisco may be the two biggest choices for the largest domestic enterprises today, but does the potential for more aggressive North American market entry from Siemens and Alcatel-two legitimate, globally dominant players in this customer size segment-offset the fact that their current market shares here are modest? Does the entry of Microsoft as a direct competitor-even though it, too, has very small market share right now-provide enough of a competitive prod to the leaders in installed base and current shipments? Certainly no one could argue that these other competitors are tiny upstarts whose efforts could easily be squashed by the big, bad Avaya-Cisco tag team.

The most obvious analogy to reach for would be the RBOC mergers of the 1990s and early 2000s. In nobody's imagination could these acquisitions be seen as anything other than extreme concentration of a market narrowly defined as "wireline public telephony." Yet the deals were allowed to go through in large part because of the belief that a new sort of competition, with new sorts of players, was emerging. It was thought that the new dynamics of the new market made hitherto-unthinkable combinations a reasonable step toward the new future that was emerging.

The fact that these giant mergers were allowed will be taken by some as a reason to accept the same type of deal in the large-enterprise CPE market; while others will point to the very limited state of competition and choice that remains in the carrier industry, and see the history of that regulatory regime as a cautionary tale whose repetition is to be avoided.

Ultimately, much of the duopoly talk seemed more focused on the channel than the end customer-though the very highest end is also where direct sales are most common. To me it's also debatable whether there's any reason to split the high end off from the total market for the purposes of anti-trust consideration.

Going back to the prospects for success if Avaya does get the deal done: Any big combination, whether it's a merger or an acquisition, is tough to pull off--tough, but not impossible. It's kind of like, say, Laurel and Hardy dancing to the Gap Band: Sounds improbable, but there's always the chance it'll turn out better than you'd think:

Any big combination, whether it's a merger or an acquisition, is tough to pull off--tough, but not impossible.

About the Author(s)

Eric Krapf

Eric Krapf is General Manager and Program Co-Chair forEnterprise Connect, the leading conference/exhibition and online events brand in the enterprise communications industry. He has been Enterprise Connect.s Program Co-Chair for over a decade. He is also publisher ofNo Jitter, the Enterprise Connect community.s daily news and analysis website.
Eric served as editor of No Jitter from its founding in 2007 until taking over as publisher in 2015. From 1996 to 2004, Eric was managing editor of Business Communications Review (BCR) magazine, and from 2004 to 2007, he was the magazine's editor. BCR was a highly respected journal of the business technology and communications industry.
Before coming to BCR, he was managing editor and senior editor of America's Network magazine, covering the public telecommunications industry. Prior to working in high-tech journalism, he was a reporter and editor at newspapers in Connecticut and Texas.

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