The Politics of Nortel’s Future

By Mark Evans | Published: July 28, 2009

In the wake of Nortel auctioning off its CDMA wireless business and LTE R&D unit to Ericsson for $1.13-billion, Nortel’s future has become a hot political potato in Canada.

Suddenly, federal and provincial politicians have recognized there are thousands of jobs at stake, and that Canada’s flagship high-tech company is disappearing amid a multi-billion dollar garage sale.

To be honest, that’s an over-statement.

For months, the politicos have seen Nortel’s struggle to survive, and what have they done: Nothing.

The federal government, which nows says it will vet the Ericsson deal to determine if it has a “net benefit to Canada”, rejected Nortel’s plea for a financial bail-out earlier this year. Meanwhile, it handed billions of dollars to struggling auto makers General Motors and Chrysler.

The Ontario government wants the federal government to save jobs by using “every lever at their disposal” to block the deal.

Come on, boys (and girls), if you were really serious about saving Nortel, thousands of jobs and a pillar of Canada’s New Economy, you would have acted longer ago. It’s not like Nortel is surprising anyone by selling off its assets to foreign buyers.

But this is the world of politics where perception and reality are two different things. Supporting Nortel at this juncture looks good to would-be-voters but it’s just politics rather than reality.

Truth be told, the Ericsson deal will be approved.

Ericsson, which employs a lot of people in Canada already at a Montreal R&D facility, will make promises about keeping Nortel jobs in Canada and that it will increase how much R&D it does in the Great White North.

The politicians will then proclaim victory by suggesting they encouraged Ericsson to do the right thing. And that will be that.

Welcome to the world of politicians where words, rather than action, seem to count for a lot.

For more, check out the Toronto Star, which is all over the Nortel story these days. As well, Toronto Star columnist David Olive has a list of 10 reasons to block the sale to Ericsson – many of them make little sense.

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yes4aapl

I don't see how Rimm would transition big Nortel's customers from CDMA to 4G?
Big Nortel's customers required big profitable vendors to rescue Nortel's CDMA and position it properly in competitive environment.
How silly it is to try to imagine RiM placing bids against E// NOK Huawei ZTE in CDMA market. LTE is not ready for use and it will take another few years to do so.
So yes, E// winning the auction is the best solution for all stakeholders, including creditors, suppliers, employees, customers.
I don't see any reason for gov to stop the deal, to reverse the deal….
It will be only about preserving some jobs and cooperation on some network safety issues from the position of national security. E// will agree on that with no problem.
charlesolga

It may be a little late in the game, but I still hope and pray they do something for Nortel and Nortel employees and not let it all go down the tube!!!
scalppeeler

She's over boys.
Ericsson will win.
Nothing was blocked today.
Politicians are gearing up for their three month summer break.
Clementine and the feds will do nothing at the risk it could harm foreign investment.
Least that's their lame excuse. Don't do anything for Canadians. Once again it is to worry about what the outside world will think. Woe Canada. Worry about what everyone else outisde your border thinks of you but don't take care of the ones who have been paying taxes for generations. Let the pensioners rot. If you are not on welfare or disadvantaged we want nothing to do with you. Go pick up a shovel.
If something relevant was to be done, it would have been done before or during the time the bolt turners were given their huge bailouts.
Mcguinea and Dawight are blowin smoke with Jim Watson, Manley and other politicos.
RIM will be able to bid on future LTE patents but they may not even be for sale?
Enterprise is next on the auction block, followed by MEN/CVAS. Not necessarily in that order. I don't think there is anything left to sell after these three?
The rest is likely irrelevant, and it goes into a barrel to gradually dry up, just like the pension fund for current pensioners.
The gov't did Nothing.
The gov't wanted to do Nothing.
Grow up. Get with it and face reality.
She's Dunn.
Time to spin out of this S***ario.
horace_grimswold

Duncan,

Good post. It ruminates themes from Andrea Mandel-Campbell's book “Why Mexicans Don't Drink Molson,” except that in Nortel's situation, there's a last minute stampede toward protectionist clauses as a solution rather than an introspection of Canada's competitive woes.

You're right. The optics of the Canadian government veto'ing the sale would send bad vibes to the global investment community about Canadian franchises. Especially considering that this veto threat is a new risk that was raised only _after_ the auction closed. If that veto threat had been prominent before the auction, the final price could have been much different.

Canadian politicians could spin this: use the tax credits as a negotiating point with Ericsson. A press conference with Jim Balsillie and Tony Clement side-by-side would reiterate that Canada has a solid Plan B option and that it's serious about the veto. Worst case is that Ericsson has to pony up to “export” domestic tax credits (which a smart politician would not confiscate, but rather hold as bounty for 36 months and refund based on a 3-year Canadian workforce re-evaluation). Best case is that Jim Balsillie is genuine in his desire to prop up Nortel, and the Canadian government has a solid private partner to make it a Canadian domiciled business.

But as things stand today, momentum doesn't favor much help from the crop of paper tiger politicians, and the best concession Canada might get is Ericsson changing its name to NortEricsson Networks (NEN).
scalppeeler

Yep.
But you don't turn bolts.
So you don't count.
scalppeeler

Just don't become agnostic when your prayers aren't answered.
horace_grimswold

Agreed. Public skepticism of Jim Balsillie's rescue attempt comes from RIM's unwillingness to reveal:
(1) its agenda in buying a basestation manufacturing business, which is only partially germane to Blackberry R&D
(2) how it plans to re-position the Nortel assets to make them competitive.
(3) which assets it is seeking (CDMA only? LTE patents? LTE technology)?

Balsillie's public credibility regarding the Nortel bid is lukewarm today; it would shoot through the roof if he would reveal a detailed business execution plan.
CrazyCanuk

I know.
Like a fool I bought the dream and spent four years in university, and subsequently spent years paying back my student loans in the belief that I would provide a more secure future.
In retrospect I would have been further ahead to have quit after grade 12 and got a job down in the jungle, or delivering mail.
yes4aapl

Because all I have to go on is that RIMM has PUBLICLY stated they are interested, attached a dollar figure, and I think there are some reasons why it might make sense.

And Gary Daichendt agrees, as this blog noted a few days ago.
=====
re
RIM complained about Nortel's lack of flexibility in discussions about buy_sell_auction process.
RIM accused Nortel of misleading creditors.
It is beyond my imagination why current management and BOD are making decision how to sell assets. In my opinion, BoD and Mike Z+ were given time and bankruptcy protection just for making restructuring Plan which creditors and courts would accept. BoD and Mike failed to draw and show the Plan. Their role playing games should stop there.
It was MatPat who objected to selling assets. MatPat argued that restructuring would be better for creditors not selling assets.
Sure thing is that Mike Z and GEniuses have no idea how to do it.
shleprock

Why have the shareholders not gotten together and filed a class action lawsuit???

or has there been one filed??
fabrice002

Not a Canadian, but politicians are politicians, just trying to get ahead of the problem. I hope you're right; it's too late, and they have no one to blame but themselves.

Suggest that if any clamor over the acquisition, they should look in the mirror beforehand.
charlesolga

Nope! I will pray all the harder because miracles can happen and things can turn around for Nortel!:) Nortel employees please keep your chins up:)
charlesolga

Nope! I will pray all the harder because miracles can happen and things can turn around for Nortel!:) Nortel employees please keep your chins up:)