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Nortel Networks Corporation

Type Public

Traded as OTC Pink: NRTLQ(http://www.otcmarkets.com/stock/NRTLQ/quote)formerly TSX: NT.TO, NYSE: NT

Industry TelecommunicationsNetworking equipment

Fate Bankruptcy

Founded 1895Montreal, Quebec

Headquarters Mississauga, Ontario, Canada

Number ofemployees

18 (US, July 2012);[1]

~35 (non­US, July 2012)

Parent AT&T / Bell Canada (1895­1956)Bell Canada (1956­1983)[2]

BCE Inc. (1983­2000)

Slogan Business Made Simple

Website www.nortel­us.com (http://www.nortel­us.com)

NortelFrom Wikipedia, the free encyclopedia

Nortel Networks Corporation,formerly known as NorthernTelecom Limited, Northern Electricand sometimes known simply asNortel, was a multinationaltelecommunications and datanetworking equipment manufacturerheadquartered in Mississauga,Ontario, Canada. It was founded inMontreal, Quebec in 1895. At itsheight, Nortel accounted for morethan a third of the total valuation ofall the companies listed on theToronto Stock Exchange (TSX),employing 94,500 peopleworldwide.[4]

On January 14, 2009, Nortel filed forprotection from its creditors in theUnited States, Canada, and the UnitedKingdom, in order to restructure itsdebt and financial obligations.[5] InJune 2009, the company announced itwould cease operations and sell off allof its business units.[6] The period ofbankruptcy protection was extendedto February 2, 2013.[7] As part of thebankruptcy proceedings in the United States, Nortel Networks Inc. publishes monthly operating reportsoutlining cash receipts and disbursements.[8]

Contents

1 History1.1 Origins1.2 Northern Electric and Manufacturing Company1.3 Northern Electric Company1.4 Independence from Western Electric1.5 Northern Telecom and "Digital World"1.6 Deregulation1.7 Optical boom and the Right Angle Turn1.8 After the Internet bubble

1.8.1 Accounting restatements

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1.8.2 Owens and Zafirovski1.9 Liquidation

1.9.1 Protection from creditors1.9.2 Wind­up

2 Products3 Criticism and controversy

3.1 Hackers had free access for years without being detected3.2 Government bailouts

3.2.1 20033.2.2 2009

3.3 Illegal breach of trust in Nortel's Health and Welfare Trust3.4 Bookkeeping irregularities3.5 Executive compensation

3.5.1 2001 compensation3.5.2 2003 compensation3.5.3 2008 compensation3.5.4 2009 compensation3.5.5 2010 compensation

3.6 Treatment of Nortel pensioners3.7 Nortel ex­CEO files as a creditor seeking $1 billion from the proceeds of bankruptcy3.8 Conflicts of interest

4 Corporate information4.1 Headquarters4.2 Global worksites, partners, and customers4.3 Business structure4.4 Corporate governance

4.4.1 Former members of the board of directors4.4.2 Past Leadership

5 Legacy5.1 E­MetroTel (NewNortel)

6 See also7 References

7.1 Footnotes7.2 Citations7.3 Bibliography

8 External links

History

Origins

Alexander Graham Bell conceived the technical aspects of the telephone and invented it in July 1874,[9]

while residing with his parents at their farm in Tutela Heights,[10] on the outskirts of Brantford, Ontario. Helater refined its design at Brantford after producing his first working prototype in Boston.[11] Canada's firsttelephone factory, created by James Cowherd of Brantford, was a three story brick building that soon startedmanufacturing telephones for the Bell System, leading to the city's style as The Telephone City.[12][Note 1]

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After Cowherd's death in 1881 which resulted in the closure of his Brantford factory, a mechanicalproduction department was created within the Bell Telephone Company of Canada and production ofCanadian telephones and telephone equipment was transferred to Montreal in 1882,[15] due to restrictionson importing telephone equipment from the United States.[17] In addition to phones, four years later, thedepartment started manufacturing its first switchboard, a 50 line Standard Magneto Switchboard.[15][18] Thesmall manufacturing department expanded yearly with the growth and popularity of the telephone to 50employees in 1888.[19] By 1890 it had been transformed into its own branch of operations with 200employees, and a new factory was under construction.[15]

As the manufacturing branch expanded, its production ability increased beyond the demand for phones, andit faced closure for several months a year without manufacturing other products.[20] This was a problembecause the Bell Telephone Company of Canada's (later renamed to Bell Canada) charter would not allowthem to build other products. So in 1895, the Bell Telephone of Canada was required to spin off itsmanufacturing arm to build phones for sale to other companies, as well as other devices such as fire alarmboxes, police street call boxes, and fire department call equipment. This company was incorporated as theNorthern Electric and Manufacturing Company Limited.[15]

Northern Electric and Manufacturing Company

Northern Electric and Manufacturing Company Limited was incorporated on 7 December 1895, by thefollowing corporate members (or Board of Directors):[21] Charles Fleetford Sise Sr., President of BellCanada – Provisional Director; Robert Mackay, merchant – Provisional Director; Hugh Paton, manager ofthe Shedden Company – Provisional Director; The Hon. Joseph Rosaire Thibaudeau, Senator – ProvisionalDirector; Robert Archer, gentleman – Provisional Director; Charles P. Sclater, secretary – ProvisionalDirector; Lewis B. McFarlane, manager, all of the city and district of Montreal, Quebec.

The initial stock capital was $50,000 at $100 per share, with 93 percent held by the Bell TelephoneCompany of Canada and the remainder held by the seven corporate members above.[21] The first generalstockholders meeting was held on March 24, 1896.

In December 1899, The Bell Telephone Company of Canada bought a cabling company for $500,000; aCanadian charter named it The Wire and Cable Company.[22] Northern Electric and Manufacturing furtherexpanded its product line in 1900, manufacturing the first Canadian wind­up gramophones that played flatdiscs.[23] In 1911 the Wire and Cable company changed its name to the Imperial Wire and CableCompany.[24]

Northern Electric Company

The construction of a new manufacturing plant started in 1913 at Shearer Street in Montreal, Canada, aspreparations began for the two manufacturing companies' integration. Then, in January 1914, the NorthernElectric and Manufacturing Company and the Imperial Wire and Cable Company merged into the NorthernElectric Company, commonly known simply as Northern Electric, and the new company opened the doorson a new manufacturing plant in January 1915. This facility at Shearer Street was the primarymanufacturing centre until the mid­1950s.[23] Edward Fleetford Sise was the president and his brother PaulFleetford Sise was the vice­president and general manager.[25]

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1950 Logo An audio amplifier manufactured byNorthern Electric.

During the First World WarNorthern Electricmanufactured the PortableCommutator, a one­wiretelegraphic switchboard formilitary operations in thefield. In 1922, Northernstarted to produce, for $5, the"Peanut" vacuum tube,which required only a singledry­cell battery. The use ofalternating current was still

under development during this time. The "Northern Electric Peanut tube was the smallest tube made, anddrew only one­tenth of an ampere and was the most remarkable radio frequency amplifier ever made."[26]During the 1920s Northern Electric made kettles, toasters, cigar lighters, electric stoves, and washingmachines.[27] In January 1923, Northern Electric started to operate an AM radio station with call lettersCHYC, in the Shearer Street plant, and much of the programming was religious services for the NorthernElectric employees and families in the community. In July 1923, CHYC­AM was the first radio station toprovide entertainment to the riders of the transcontinental train, in a parlor car fitted with a radio set toreceive the broadcast as it left Montreal and traveled west.[28] Later in the 1920s, Northern created the firsttalking movie sound system in the British Empire for a theater in Montreal.[27]

During the Great Depression in the 1930s, Northern Electric was affected, like most other companies. Fromthe beginning of 1930 through the end of 1933, sales dropped from $34 million to $8.2 million, and thenumber of employees dropped from 6,100 to 2,400.[29]

Independence from Western Electric

In 1949, an antitrust suit in the U.S. forced AT&T/Western Electric to sell its stake in Northern Electric toBell Canada. AT&T spun off Northern Electric in 1956. Deprived of its Western Electric tie, Northernbegan developing its own products. In 1953, Northern Electric produced its first television sets using tubesmade by RCA.[30] Bell Canada acquired 100 percent of Northern Electric in 1964; through public stockofferings starting in 1973, Bell's ownership of Northern Electric and its successors would be reduced,though it continued to have majority control.

In 1966, the Northern Electric research lab, Northern Electric Laboratories (the predecessor to Bell­Northern Research), started looking into the possibilities of fiber optic cable, and in 1969, began work ondigitizing telephone communications. Also in 1969, Northern began making inroads into the U.S. marketwith its switching systems. In 1972, it opened its first factory in the U.S. in Michigan. In 1975, Northernbegan shipping its first digital switching systems, one of the earliest such systems to be sold.

Northern Telecom was, with Bell­Northern Research, in the early 70's a part owner of MicroSystemsInternational a semiconductor manufacturer based in Nepean, outside Ottawa.

Northern Telecom and "Digital World"

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In 1976, the company name was changed to Northern Telecom Limited, and management announced itsintention to concentrate the company's efforts on digital technology. Northern Telecom was the firstcompany in its industry to announce and to deliver a complete line of fully digital telecommunicationsproducts. The product line was branded "Digital World" and included the well known DMS­100, a fullydigital central office switch serving as many as 100,000 lines, which was a key contributor to the company’srevenue for close to 15 years.

Starting in 1977, Nortel grew rapidly after the introduction of its DMS line of digital central officetelephone switches, especially after the AT&T breakup in 1984. Northern Telecom became a significantsupplier in Europe and China and was the first non­Japanese supplier to Nippon Telegraph and Telephone.

Deregulation

In 1983, due to deregulation, Bell Canada Enterprises (later shortened to BCE) was formed as the parentcompany to Bell Canada and Northern Telecom. Bell­Northern Research was jointly owned 50­50 by BellCanada and Northern Telecom. The combined three companies were referred to as the tricorporate.[31][32][33]

As Nortel, the streamlined identity it adopted for its 100th anniversary in 1995, the company set out todominate the burgeoning global market for public and private networks.

Optical boom and the Right Angle Turn

In 1998, with the acquisition of Bay Networks, the company's name was changed to Nortel Networks toemphasize its ability to provide complete solutions for multiprotocol, multiservice, global networking overthe Internet and other communications networks. As a consequence of the stock transaction used topurchase Bay Networks, BCE ceased to be the majority shareholder of Nortel.

In 2000, BCE spun out Nortel, distributing its holdings of Nortel to its shareholders. Bell­NorthernResearch was gradually absorbed into Nortel, as it first acquired a majority share in BNR, and eventuallyacquired the entire company.

In the late 1990s, stock market speculators, hoping that Nortel would reap increasingly lucrative profitsfrom the sale of fibre optic network gear, began pushing up the company's share price to unheard­of levelsdespite the company's repeated failure to turn a profit. Under the leadership of CEO John Roth, sales ofoptical equipment had been robust in the late 1990s, but the market was soon saturated. When thespeculative telecom bubble of the late 1990s reached its pinnacle late in the year 2000, Nortel was tobecome one of the most spectacular casualties.

At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on theToronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone.[4][34] Nortel'smarket capitalization fell from C$398 billion in September 2000 to less than C$5 billion in August 2002, asNortel's stock price plunged from C$124 to C$0.47. When Nortel's stock crashed, it took with it a wideswath of Canadian investors and pension funds and left 60,000 Nortel employees unemployed. Roth wascriticized after it was revealed that he cashed in his own stock options for a personal gain of C$135 millionin 2000 alone.[35]

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CEO John Roth retired in 2001. His planned successor and chief operating officer, Clarence Chandran,already on sick leave due to complications following his 1997 stabbing in Singapore,[36] decided to quit,however.[37] Chief financial officer Frank Dunn was eventually chosen as Roth's permanent replacement.

After the Internet bubble

Accounting restatements

Frank Dunn presided over a dramatic restructuring of Nortel, which included laying off two­thirds of itsworkforce (60,000 staff) and writedowns of nearly US$16 billion in 2001 alone. This had some initialperceived success in turning the company around, with an unexpected return to profitability reported in thefirst quarter of 2003. The black ink triggered a total of $70 million in bonuses to the top 43 managers,[38]

with $7.8 million going to Dunn alone,[39] $3 million to chief financial officer Douglas Beatty, and $2million to controller Michael Gollogly.[40] Independent auditor Deloitte & Touche advised audit committeechairman John Cleghorn and board chairman "Red" Wilson to look into the suspicious results, whopromptly hired the law firm WilmerHale to vet the financial statements.[41] In late October 2003, Nortelannounced that it intended to restate approximately $900 million of liabilities carried on its previouslyreported balance sheet as of June 30, 2003, following a comprehensive internal review of these liabilities.The Company stated that the restatement's principal effects would be a reduction in previously reported netlosses for 2000, 2001, and 2002 and an increase in shareholders’ equity and net assets previously reportedon its balance sheet. A dozen of the company's most senior executives returned $8.6 million of bonuses theywere paid based on the erroneous accounting. Investigators ultimately found about $3 billion in revenue hadbeen booked improperly in 1998, 1999, and 2000. More than $2 billion was moved into later years, about$750 million was pushed forward beyond 2003 and about $250 million was wiped away completely. Theaccounting scandal hurt both Nortel's reputation and finances, as Nortel spent an estimated US$400 millionon outside auditors and management consultants to retrain staff.[41]

Dunn, Beatty, and Gollogly were fired on April 28, 2004 for financial mismanagement, and later chargedwith fraud by the RCMP.[42][43] The trial began on January 16, 2012,[44] ending with acquittals for allthree.[45][46]

The United States Securities and Exchange Commission (SEC) also filed charges against them and fourvice­presidents for civil fraud.[43] On December 19, 2014, remaining civil charges from the OntarioSecurities Commission and SEC were simultaneously dropped.[47]

To improve Nortel's liquidity in support of its operations, Nortel reached an agreement in 2003 with ExportDevelopment Canada for it to provide Nortel with a credit support facility of up to US$750 million.[48]Walter Robinson of the Canadian Taxpayers Federation denounced the line of credit, calling it "corporatewelfare at its worst."[49]

Owens and Zafirovski

After Dunn's firing, retired United States Admiral Bill Owens – at the time a member of the board ofdirectors – was appointed interim CEO. Nortel Networks subsequently returned to using the Nortel namefor branding purposes only (the official company name was not changed). Nortel acquired PEC Solutions, a

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provider of information technology and telecommunications services to various government agencies anddepartments, in June 2005 and renamed it Nortel Government Solutions Incorporated (NGS).[50][51] LGElectronics and Nortel formed a joint venture in August, with Nortel owning 50% plus one share, to offertelecom and networking solutions in the wireline, optical, wireless and enterprise areas for South Koreanand global customers.

Peter W. Currie, previously the Chief Financial Officer (CFO) of the Royal Bank of Canada, was namedCFO of Nortel in 2005, having previously served as Northern Telecom's CFO in the 1990s. Gary Daichendt,the former Chief Operating Officer of Cisco Systems, was hired as President and COO, and was expected tosucceed Owens as CEO. Shortly afterward, Daichendt appointed ex­Cisco Chief Science Officer GaryKunis as Chief Technology Officer (CTO). Both Garys were concerned about the overall direction ofNortel, especially when compared to Cisco, their previous employer. Just three months later, Daichendtresigned after both his restructuring plan and his suggestion that Owens and Currie leave the companyimmediately were rejected by the board of directors. Kunis quit shortly thereafter.[52] At the year's end,directors Lynton "Red" Wilson and John Cleghorn retired from the board.

Mike S. Zafirovski, who had served as President and CEO of GE Lighting and then as Motorola Presidentand COO, succeeded Owens as president and CEO on November 15, 2005.[53] Motorola filed a suit againstZafirovski's hiring, alleging that his new position would break the terms of the non­disclosure agreement hehad signed. Nortel agreed to pay $11.5 million on his behalf to settle the lawsuit.[54] Nortel also paid outUS$575 million and 629 million common shares in 2006 to settle a class­action lawsuit that accused thecompany of misleading investors about the company's health.

Currie stepped down as Executive Vice President and CFO in early 2007. In February 2007, Nortelannounced its plans to reduce its workforce by 2,000 employees, and to transfer an additional 1,000 jobs tolower­cost job sites. The Securities and Exchange Commission filed civil fraud charges against Nortel foraccounting fraud from 2000 to 2003; the fraud was allegedly to close gaps between its true performance, itsinternal targets and Wall Street expectations. Nortel settled the case, paying $35 million, which theCommission distributed to affected shareholders, and reported periodically to the Commission on remedialmeasures to improve its financial accounting.

Nortel announced plans in February 2008 to eliminate 2,100 jobs, and to transfer another 1,000 jobs tolower­cost centres.[55] As part of the reductions, Nortel shut down its Calgary campus in 2009.[56]

During its reporting of third quarter 2008 results, Nortel announced it would restructure into threevertically­integrated business units: Enterprise, Carrier Networks, and Metro Ethernet Networks. As part ofthe decentralization of its organization, four executive positions were eliminated, effective January 1, 2009:Chief Marketing Officer ­ Lauren Flaherty; Chief Technology Officer ­ John Roese; Global ServicesPresident ­ Dietmar Wendt; and Executive Vice President Global Sales ­ Bill Nelson. A net reduction of1,300 jobs was also announced.[57] As its stock price dropped below $1, the New York Stock Exchangenotified Nortel that it would be delisted if its common shares failed to rise above $1 per share within 6months.[58] Rumours continued to persist of Nortel's poor financial health, amid the late 2000s recession,and its bids for government funds were turned down.[59]

Liquidation

Protection from creditors

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On January 14, 2009, Nortel filed for protection from creditors, in the United States under Chapter 11 of theUnited States Bankruptcy Code, in Canada under the Companies' Creditors Arrangement Act, and in theUnited Kingdom under the Insolvency Act 1986.[5][60][61] Nortel was the first major technology company toseek bankruptcy protection in this global downturn.[62] Nortel had an interest payment of $107 million duethe next day, approximately 4.6% of its cash reserves of approximately $2.3 billion.[63] After theannouncement, the share price fell more than 79% on the Toronto Stock Exchange. Export DevelopmentCanada agreed to provide up to C$30 million in short­term financing through its existing credit supportfacility with Nortel. The Canadian government resisted characterizing its position on Nortel as a bailout.[64]

Nortel initially hoped to re­emerge from bankruptcy, implementing a retention bonus plan in an effort toretain its top executives during the restructuring period. These bonuses, totaling US$45 million, weretargeted at 1,000 executive positions.[65] At the end of January 2009, Nortel announced that it would bediscontinuing its WiMAX business and its agreement with Alvarion.[66][67] Nortel subsequently sold itsLayer 4–7 application delivery business to Israeli technology firm Radware for $18 million, after Radwarehad initially placed a stalking horse bid.[68][69] Nortel had acquired the application switch product line inOctober 2000 when it purchased Alteon WebSystems.[70]

Wind­up

With the worsening recession and stock market decline deterring potential companies from bidding forNortel's assets, and many of Nortel's major customers reconsidering their relationships with therestructuring company,[71] in June Nortel announced that it no longer planned to emerge from bankruptcyprotection, and would seek buyers for all of its business units.[72] After announcing it planned to sell off allof its assets, Nortel shares were delisted from the Toronto Stock Exchange on June 26, 2009 at a price of$0.185 per share, down from its high in 2000 when it comprised a third of the S&P/TSX compositeindex.[72][73][74] Mike Zafirovski subsequently resigned in August, and Nortel's board of directors wasreorganized with three members instead of nine.[75] Nortel handed out $14.2 million in cash compensationto seven executives in 2009. Nortel also paid out $1.4 million to 10 former and current directors, and paid$140 million to lawyers, pension, human resources and financial experts helping to oversee the company’sbankruptcy proceedings.[76]

Nokia Siemens Networks made a stalking horse bid to purchase Nortel's CDMA and LTE assets for $650million.[72] By the July 21 deadline for additional bids, MatlinPatterson and Ericsson had made offers,[77]

and Ericsson emerged as the victor in the following auction, with a purchase price of $1.13 billion.[78][79]Avaya won an auction for Nortel's Enterprise Solutions business, including Nortel's stake in NortelGovernment Solutions and DiamondWare, for $900 million,[80] after having placed a stalking horse bid of$475 million.[81] In November, Nortel sold its MEN (Metro Ethernet Networks) unit to Ciena Corporationfor US$530 million in cash and US$239 million in convertible notes,[82][83] and its GSM business at auctionto Ericsson and Kapsch for US$103 million.[84][85][86][87] Hitachi purchased the Next Generation PacketCore assets.[88] As insurance against judgments in class action lawsuits filed by former employees, JohnRoth filed in December 2009 for a US$1 billion indemnification from Nortel, joining the list of U.S.creditors.[89]

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In February 2010, Ernst & Young, the court­appointed monitor of Nortel's Canadian bankruptcyproceedings, reported that the assets of Nortel's Health and Welfare Trust had a shortfall of $37 million inits net assets as of December 31, 2008. The trust supports pensioners' medical, dental and life insurancebenefits, as well as income support for some groups such as long­term disability recipients.[90] Also inFebruary, Nortel negotiated a $57­million deal to wind up the health care and other benefits provided toformer Canadian employees. Shortly afterwards, Nortel proposed spending $92.3M on retention bonuses for1,475 employees in its Nortel Business Services and Corporate groups, with $2.5 million in incentivesgoing to Christopher Ricaute, president of Nortel Business Services; $27 million allocated for Canadianemployees; and $55 million allocated for U.S. employees.[91] The proposed plan was later extended by anadditional $27 million.[92] Claiming that the retention bonuses proposal was extraordinary, acting US trusteeRoberta DeAngelis objected to the payment of $55.6 million to 866 employees.[93] However, court­appointed representatives for Nortel's former employees, who are creditors in the Ontario bankruptcy court,have signed an agreement to not oppose any employee incentive program.

Genband purchased the Carrier VoIP and Application Solutions (CVAS) unit in May 2010, as Nortelaccepted its stalking horse bid of $282 million, with adjustments that decreased the net sale price to about$100 million, without a formal bidding process.[94][95][96] Ericsson purchased Nortel's share in its jointventure with LG Electronics for US$242 million, forming LG­Ericsson, in June 2010.[97][98] Ericsson alsopurchased Nortel's final operating unit, the Multi­Service Switch division, in September 2010 for US$65million.[99][100][101] Nortel's Ottawa campus on Carling Avenue was purchased by Public Works andGovernment Services Canada (PWGSC) in October 2010 for a cash purchase price of CDN$208million.[102]

Nortel's 53.13% stake in Turkish company Nortel Netaş was acquired by One Equity Partners (OEP) andRhea Investments for $68 million in December 2010.[103][104]

The last major asset of Nortel, approximately 6,000 patents and patent applications encompassingtechnologies such as wireless, wireless 4G, data networking, optical, voice, Internet, and semiconductors,was sold for $4.5 billion to a consortium including Apple, EMC, Ericsson, Microsoft, Research In Motion,and Sony, pending American and Canadian court approval.[105][106] (Google had placed the initial stalkinghorse bid of $900 million[107] and later upped the bid to $1,902,160,540, then $2,614,972,128, andeventually $3.14159 billion, which are references to Brun's constant, Meissel–Mertens constant, and pi.)[108]Bankruptcy filings state that Nortel owes former Canadian engineers $285,000 for patent awards that werenot paid.[109]

In October 2011, the administrators of Nortel's British subsidiary lost their appeal to overturn a court orderrequiring them to pay £2.1 billion into Nortel's underfunded pension plan.[110]

Nortel Networks U.S. retirement income plan is now managed by PBGC Pension Benefit GuarantyCorporation[111]

January 2014, a pact between U.S. and European divisions of Nortel Networks is approved by U.S. judge.Corp.[112]

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April 2016, Nortel Networks Corp. went back to court for a fresh round of legal arguments in a seven­year­old bankruptcy which has cost creditors about $2 billion including attorney fees. [113]

Products

Nortel made telecommunications, computer network equipment and software. It served both generalbusinesses and communications carriers (landline telephone, mobile phone, and cable TV carriers).Technologies included telephonic (voice) equipment, fiber optics, local wireless, and multimedia.

Past products included:

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Telephone Systems Telephone setsand terminals LAN and MAN equipment

Application Server 5200 andApplication Server 5300 (AS5300)

Nortel businessphones, digitalsets for Meridianand Norstar

Baystack and ERS (Ethernet Routing Switch),managed network switches for Ethernet; ERS­8600, ERS­8300, ERS­5600, ERS­5500, ERS­4500, ERS­2500

Digital Multiplex System (DMSand SL­100 families) large­scaledigital carrier phone switch

Northern Electrichome phones

Multiservice Switch (MSS) (formerly Passport);MSS20000, MSS15000, MSS7400, MSS6400

Meridian 1 (SL­1) medium­to­large­scale PBX

Northern Telecomhome phones Metro Ethernet Routing Switch 8600

Meridian Norstar small­to­medium­scale digital key telephonesystem

Nortel payphones Nortel Secure Network Access (switch andsoftware)

Nortel Communication Servers,medium­to­large­scale VoIP PBXSystems; CS2100, CS2000,CS1500, CS1000

Nortel IP Phone1120E

DV­1 minicomputer digital voiceand data system

Nortel IP Phone1140E

SG­1 analog stored programcontrol PBXSP­1 analog stored program controlcarrier switch

Routers Software Other WAN equipment

Secure Router 1000 Systems;SR1004, SR1002, SR1001S,SR1001

VisualizationPerformance &Fault Manager(VPFM)

1 Mbit/s modem

Secure Router 3120 Nortel EnterpriseSwitch Manager S/DMS SONET

Secure Router 4134Nortel File andInventoryManager

OPTera Long Haul

Secure Router 8000 Systems;SR8002, SR8004, SR8008,SR8012

Nortel Multi­linkTrunking Manager

VPN Routers; 1750, 2700, 2750,5000

Nortel MulticastManagerNortel SpeechServerPassport CarrierReleaseNortel Routing

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Manager

Nortel SecurityManagerNortel VLANmanagerUnifiedCommunicationsManagementAgileCommunicationEnvironment

Criticism and controversy

Hackers had free access for years without being detected

In September 1991, Julian Assange of WikiLeaks was discovered in the act of hacking into the Melbournemaster terminal of Nortel.[114]

In 2004, it was discovered that crackers (malicious hackers) gained almost complete access to Nortel'ssystems. Thought to have originated in 2000, for nearly ten years they accessed documents includingemails, technical papers, research, development reports, and business plans. The breach was not properlyaddressed by the time the company started selling some of its assets in 2009, following a bankruptcy filing.The Wall Street Journal reports that hackers working from Chinese IP addresses used seven passwords ofNortel executives, including a former CEO, to penetrate networks owned by the company.[115]

Brian Shields, a former systems security advisor for Nortel, led an internal investigation on the breach andexposed rootkit software on at least two machines in 2009 that allowed hackers to control them remotelyand monitor email. Despite the original discovery in 2004 and the subsequent investigation that led to therootkit detection in 2009, Nortel allegedly ignored the problem and failed to disclose it to potential buyersof its business. Avaya and Genband both acquired parts of Nortel, and some employees used old Nortelmachines connected to the new companies' networks. Although Avaya says it has dealt with the issue,Shields says "it's despicable that Nortel didn't say anything," leaving it up to him to inform the newcompany of his investigation. Nortel refused to comment on The Wall Street Journal report, but formerCEO Mike Zafirovski, in charge between 2005 and 2009, claimed the company "did not believe it was areal issue."[115][116][117] [118][119]

Mr. Shields went on to tell the Canadian Broadcasting Corporation that he believes the extensivecyberattacks on Nortel contributed to its downfall.[120]

Government bailouts

2003

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On Feb 16, 2003 the Winnipeg Sun published an article criticising the Canadian Federal government forpropping up “mega­loser Nortel” through Export Development Canada (EDC). The article interviewedWalter Robinson of the Canadian Taxpayers Federation who termed this EDC support as "corporate welfareat its worst." Mr Robinson was appalled that Canadians who already lost billions on Nortel on the stockmarket would be asked for even more money through their taxes to support Nortel.[49]

2009

EDC had agreed to provide up to $30 million in short­term financing through an existing bonding facility.The Canadian government resisted characterizing its position on Nortel as a bailout.[121]

Illegal breach of trust in Nortel's Health and Welfare Trust

There have been reports of financial irregularities at Nortel's Health and Welfare Trust. Diane Urquhart, afinancial analyst, testified before a parliamentary committee that $100 million is missing from the HWTand that a $37 million loan to the corporation has not been paid back.[122] The HWT was an unregisteredtrust maintained by Nortel to provide medical, dental, life insurance, long­term disability and survivorincome and pension transition benefits.[123][124] Until 2005 Nortel fully funded the disability insurance in itsHWT. However, it is alleged that since then, the HWT Governance Committees and third party trustee,Northern Trust, breached their fiduciary duties to protect Nortel's disabled employees and survivors ofdeceased employees by allowing Nortel to misdirect over $100 million from the HWT for purposesinconsistent with the terms of the HWT.[125] As of March 1, 2012, Northern Trust continues to act as thepaying agent for Canadian Nortel pensioners.[126]

Bookkeeping irregularities

In 2007 both the U.S. Securities and Exchange Commission and the Ontario Securities Commission laidcharges against former senior financial officials from Nortel including Frank Dunn who was fired fromNortel in 2004. Frank Dunn was promoted from chief financial officer to replace John A. Roth as CEO inNovember, 2001. According to the SEC, Dunn and three other financial officers began to fudge revenue bymisusing "bill and hold" transactions starting "no later than September, 2000". The SEC said that at least ayear's worth of the alleged book­keeping took place while John Roth was still CEO of Nortel, even thoughno charges were laid against him.[127][128]

Executive compensation

2001 compensation

In the article “Nortel's Roth Rakes It In” published by Light Reading, Nortel was criticized for raising itsCEO’s pay just days before he announced his intention to retire in May 2001. The article went on to statethat Nortel’s share prices tumbled almost twentyfold during Roth’s years at the helm of Nortel and itsnumber of employees dropped dramatically.[129]

2003 compensation

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In 2003 Nortel paid tens of millions of dollars in so­called "return to profitability" bonuses, largely to aselect group of senior managers. The "return to profitability" has been alleged to be a fabrication achievedby the release of $490 million in reserves to boost earnings.[130]

2008 compensation

In 2008, despite continuing losses, layoffs, and declining share prices at the struggling telecom­gear maker,Nortel Networks CEO Mike Zafirovski was awarded a 21.5 percent pay increase to $10.1 million.[131]

2009 compensation

As Nortel entered bankruptcy proceedings, it paid out retention bonuses to almost 1,000 top executives,totalling up to US$45 million,[65] drawing criticism as the company withheld severance payments toemployees laid­off prior to the creditor protection filing. Nortel proceeded with thousands of additionallayoffs without severance,[132][133] and the pension fund remained underfunded,[134] while Nortel paid $14.2million in cash to seven executives. Nortel also paid $1.4 million to ten former and current directors, andpaid $140 million to lawyers, pension, human resources and financial experts helping to oversee thecompany’s bankruptcy proceedings.[76]

2010 compensation

In a U.S. court filing on February 11, 2010, Nortel proposed to spend $92.3M on retention bonuses for1,475 employees in its Nortel Business Services and Corporate groups. According to the plan, ChristopherRicaurte, president of Nortel Business Services, would receive $2.5 million in incentives. In all, Canadianemployees were eligible for $27 million, U.S. employees $55 million, and about $10 million would go toothers. This proposed plan came the same week Nortel negotiated a $57­million deal to wind up health careand other benefits for former Canadian employees.[135] Claiming that the retention bonuses proposal wasextraordinary, acting US trustee Roberta DeAngelis objected to the payment of $55.6 million to 866employees.[93] However, court appointed representatives for Nortel former employees, who are creditors inthe Ontario bankruptcy court, have signed an agreement to not oppose any employee incentive program.

Treatment of Nortel pensioners

On June 23, 2010 the News and Observer published a story criticizing treatment pensioners have beenreceiving from their former employer, Nortel. According to the article, Nortel has asked a federal court toterminate medical coverage, prescription drug coverage, long­term disability, and life insurance of 4,000retirees and dependents, claiming the benefits are costing the company $2 million per month. Nortel blamedthe company's creditors for this decision.[136]

Nortel ex­CEO files as a creditor seeking $1 billion from the proceeds of bankruptcy

In the middle of the decade several class­action lawsuits were filed against John Roth and others, by formeremployees who felt that their 401K company plans were depleted due to misrepresentation by thedefendants. They claimed they were duped into investing in Nortel stock, when those who encouraged them

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Nortel's former head offices at 195The West Mall

Former campus in California

to do so allegedly knew that the company was ailing. John Roth left Nortel in 2001 with more than $130million.

In 2009 Mr. Roth filed a claim for $1 billion, aiming to become a creditor to the assets of Nortel along withall other Nortel employees, in case the class action lawsuits against him succeeded.[137][138]

Conflicts of interest

During Nortel's 2002 annual shareholders' meeting held in Halifax, Nova Scotia, several shareholders(including Robert Verdun) complained about non­arms­length relationships with service providers such asdirector Yves Fortier, who provided legal services to Nortel while sitting on its board, and Nortel's auditors,Deloitte & Touche LLP, who were paid $15 million for non­auditing services.[139]

Corporate information

Headquarters

Nortel's current headquarters is located at 5945 Airport Road inMississauga, Ontario.[140] Previous locations of its head officesinclude Brampton, Ontario (sold to Rogers Communications in 2006and now known as Rogers Park, Brampton) and 195 The West Mallin Toronto (now used by SNC­Lavalin).[141]

Global worksites, partners, and customers

Nortel expanded into the U.S. in 1971. The company eventually hademployees in over 100 locations in the U.S. with R&D, softwareengineering, and sales centres in many states including California,Florida, Georgia, Illinois, Maryland, Massachusetts, North Carolina,Texas, and Virginia. Nortel's full­service R&D centres were locatedin Ottawa (its R&D headquarters), Beijing, and Guangzhou.[142] InCanada, Nortel also has R&D sites in Montreal, Belleville, andCalgary. In the United States, Nortel's major R&D sites were inResearch Triangle Park (North Carolina), Richardson (Texas),Billerica (Massachusetts), and Santa Clara.

Nortel had a significant presence in Europe, Middle East, Africa, theCaribbean, and Latin America. Nortel delivered networkinfrastructure and communication services to customers across Asiain (mainland) China, Hong Kong, Taiwan, South Korea, Japan,Singapore, Thailand, Malaysia, India, Pakistan, Australia, NewZealand, and Turkey (Nortel owned 53.17% of Nortel Netaş,originally established as a joint venture with Turkish PTT in1967).[143]). In addition, the company had three joint ventures in the

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People's Republic of China, including Guangdong Nortel Telecommunications Equipment (GDNT), whichoperated Nortel's full service R&D centres in China.

Business structure

At the start of 2010, based on membership in Nortel's benefit plan, there were 1,637 employees working forNortel Networks and 982 working for Nortel Technology in Canada.[144] In February 2008, Nortelemployed approximately 32,550 people worldwide, including 6,800 employees in Canada and 11,900 in theUnited States.[55] Nortel operations were divided into the following segments:[145][146]

Carrier Networks (CN): Mobility networking solutions, including CDMA, GSM, and UMTS, andcarrier networking solutions, both circuit and packet based.Enterprise Solutions (ES): Enterprise networking solutions, including circuit and packet basedvoice, data, security, multimedia messaging and conferencing, and call centres.Metro Ethernet Networks (MEN): Optical and metropolitan area networking solutions, for carrierand enterprise customers.Global Services (GS): Services in four areas: network implementation, network support, networkmanagement, and network applications (including web services).

Corporate governance

Nortel's board of directors resigned and the board disbanded effective October 3, 2012. All remainingexecutive officers also resigned effective this date. As part of the wind­down process, a court order wasissued providing Ernst & Young Inc., the court­appointed monitor in Nortel’s creditor protectionproceedings, the ability to exercise any powers which may be properly exercised by a board of directors ofNortel.[147]

Former members of the board of directors

[148]

Jalynn H. Bennett, CMDr. Manfred BischoffJames BlanchardRobert Ellis BrownFrank C. Carlucci, former chairman of theboardJohn CleghornFrank DunnYves FortierHon. James B. Hunt, Jr.Robert Alexander Ingram[149]

Kristina M. JohnsonJohn Alan MacNaughtonHon. John P. Manley

Richard David McCormickClaude MongeauWilliam Owens (Admiral)Harry Jonathan Pearce, former chairman of theboardDavid Richardson, former chairpersonJohn Andrew RothGuylaine SaucierSherwood SmithJohn D. WatsonLynton "Red" Wilson, former chairman of theboardMike Zafirovski, former president and CEO

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A Nortel 1140E Unistim IP Phonein use on a UCx from E­MetroTel

Past Leadership

[150]

Edward Fleetford Sise President of the Northern Electric Company (1914–1919)Paul Fleetford Sise President of the Northern Electric Company (1919–1948)Ralph Holley Keefler, President of the Northern Electric Company (1948 –1964)Vernon Oswald Marquez, President of the Northern Electric Company (1967­1971)John C. Lobb, President (1971­1974)David G. Vice, President and COOWalter Frederick Light, President of Northern Telecom (1974­1982)Edmund B. Fitzgerald, President (1982­1989)Paul G. Stern, CEO (1989­1992)Jean Monty, President[151]Roy Merrills, PresidentJohn Roth, President, CEO and Chairman of the Board of Nortel Networks (1997­2001)Frank Dunn, President and CEO of Nortel Networks (2001­2004)Bill Owens, President and CEO of Nortel Networks (2004­2005)Mike Zafirovski, President and CEO of Nortel Networks (2005­2009)

Legacy

E­MetroTel (NewNortel)

A group of Nortel alumni have created their own company, named E­MetroTel, to continue evolving the Nortel product into a nextgeneration product line called the UCx. Based in Plano, Texas, thecompany consists of a group of Nortel engineers and developers whoworked on the Nortel Meridian 1, CS1000, CS2100, Meridian Norstar,Business Communication Manager, and SCS platforms, whileemployed at Nortel.[152] They offer support for some Nortel products.

See also

Accounting scandals1­Meg ModemBell Telephone MemorialBell­Northern ResearchBusy OverrideCanadian Industrial Research and Development OrganizationsMultiservice Switch

Nortel Government SolutionsPassport Carrier ReleaseNortel Retirees and former employees Protection Canada (NRPC)List of Nortel protocols

References

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Footnotes

1. Alexander Graham Bell had originally asked Boston manufacturer Charles Williams to provide an initial order of1,000 telephones for use in Canada, but Williams' small shop was only able to produce a fraction of that number.Bell then spoke with a Brantford friend, James Cowherd (1849? – Feb. 1881), who set up Canada’s firsttelephone factory which produced 2,398 telephones to Bell's specifications by 1881. Dr. Bell sent Cowherd toBoston in 1878 to study Williams manufacturing processes for a number of months; Cowherd then returned toBrantford to both produce Bell's production telephones and help develop newer models. Among Cowherd'sdesigns was a transmitter fitted with a triple mouthpiece allowing three people to talk, and sing, simultaneously.Cowherd's untimely early death from tuberculosis was noted in major technical journals and led to the closure ofthe Bell Systems' manufacturing supplier plant in Brantford. Telephone production later resumed in Montreal,eventually leading to the creation of Northern Electric, later renamed Northern Telecom and thenNortel.[13][14][15] A Brantford Expositor article later noted of the historic factory building's demise: "[Brantford]City officials and heritage committee members hung their heads in shame in 1992 when it was learned that abuilding that once housed the first telephone factory in the world had been approved for demolition. Theembarrassing oversight came to light too late to stop wrecking crews, who were already tearing down the agedbuilding at 32 Wharfe St... The building, where equipment for Alexander Graham Bell's first telephone wasmade, had even been pictured and written about in a city­printed brochure about the great inventor. A plaqueerected by [the] Telephone Pioneers of America heralding the building's significance had been stripped from thestructure in the mid­1980s and given to the Brant County Museum".[16]

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123. Superior Court of Justice – Ontario Endorsement(http://documentcentre.eycan.com/eycm_library/Project%20Copperhead/English/Court%20Orders/77.%20Settlement%20Agreement%20Order/EndorsementSettlement.pdf) Archived(https://web.archive.org/web/20100331035546/http://documentcentre.eycan.com/eycm_library/Project%20Copperhead/English/Court%20Orders/77.%20Settlement%20Agreement%20Order/EndorsementSettlement.pdf) March 31,2010, at the Wayback Machine.

124. "Senate kills bill that would help disabled Nortel workers". CTV News. December 9, 2010. Retrieved March 12,2011.

125. Systemic Failure of Employer Sponsored Disability Insurance(http://ismymoneysafe.org/pdf/SystemicFailureofEmployerSponsoredDisabilityInsurance.pdf)

126. Minsky LLP, Koskie. "Nortel Networks Corporation – Developments". Kmlaw.ca. Retrieved May 26, 2012.127. Erman, Boyd (March 13, 2007). "Ex­Nortel CEO John Roth says he's cleared – The Globe and Mail". The Globe

and Mail (Toronto).128. "Unknown". The Globe and Mail (Toronto). March 12, 2007. Retrieved March 12, 2011.(subscription required)129. "Nortel's Roth Rakes It In – Telecom News Analysis". Light Reading. Retrieved May 26, 2012.130. "SEC Charges Four Former Senior Executives of Nortel". Sec.gov. March 12, 2007. Retrieved March 12, 2011.

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131. "Troubled Nortel boosts CEO's pay". Ottawa Citizen. February 29, 2008. Retrieved March 12, 2011.132. "Nortel slashes 10% of workforce". National Post.133. "Nortel cuts another 3,200 workers worldwide with no severance pay". National Post. February 25, 2009.

Retrieved March 12, 2011.134. Teal, Kelly M. (July 17, 2009). "An Oral History: Inside Nortel's Meltdown". Xchangemag.com. Retrieved

March 12, 2011.135. "Nortel allots $92.3M for top staff". Ottawa Citizen. Archived from the original on March 22, 2010.136. "Nortel wants to dump retirees". News and Observer. June 23, 2010.137. CBC News. December 17, 2009

https://web.archive.org/20121108142039/http://www.cbc.ca/canada/ottawa/story/2009/12/17/nortel­john­roth­lawsuits.html. Archived from the original on November 8, 2012. Missing or empty |title= (help)

138. Evans, Mark (December 18, 2009). "John Roth Wants Nortel’s Help!". Archived from the original on July 7,2011. Retrieved December 6, 2010.

139. "Shareholders Blast Nortel – Telecom News Analysis". Light Reading. Retrieved May 26, 2012.140. Nortel Networks Corporation (2009). "Nortel in Canada – Local Offices". Nortel Networks Corporation.

Retrieved December 10, 2009.141. "Nortel Selects Toronto Location for New Global Headquarters" (Press release). Nortel Networks. December 20,

2005. Retrieved September 12, 2006.142. Nortel Networks (2008). "Nortel's Major Research & Development Locations". Retrieved September 4, 2008.143. Nortel Networks (2007). "Nortel Netaş". Retrieved August 8, 2007.144. Ernst & Young (February 23, 2010). "Supplement to the Thirty­Ninth Report of the Monitor" (PDF). p. 28.

Retrieved February 25, 2010.145. Nortel Networks (September 30, 2006). "United States SEC filing, 2006 Third Quarter Form 10­Q" (PDF).

Retrieved November 12, 2006.146. Nortel Networks (March 31, 2007). "United States SEC filing, 2007 First Quarter Form 10­Q" (PDF). Retrieved

June 26, 2007.147. Nortel Networks. "Nortel Announces Expanded Powers of Monitor under CCAA; Boards of Directors and

Executive Officers Resign". Retrieved October 22, 2012.148. Nortel Networks. "Board of Directors". Retrieved October 23, 2006.149. Belson, Ken; Simon, Bernard (May 13, 2004). "Investors Are Taking Long, Hard Look at Nortel's Board". New

York Times.150. Nortel. "Nortel's Past Leadership".151. "Profile: Jean C. Monty". Forbes.152. http://www.newnortel.com/about­us

Bruce, Robert V. Bell: Alexander Bell and theConquest of Solitude(https://books.google.com/books?id=ZmR0MOQAu0UC). Ithaca, New York: CornellUniversity Press, 1990, ISBN 0­8014­9691­8.Macdonald, Larry (2000). Nortel Networks. JohnWiley & Sons. ISBN 0­471­64542­7.Rens, Jean­Guy; Roth, Käthe (2001). The InvisibleEmpire: A History of the TelecommunicationsIndustry in Canada. McGill­Queen's Press –MQUP. ISBN 978­0­7735­2052­3.

Reville, F. Douglas. History of the County ofBrant: Illustrated With Fifty Half­Tones TakenFrom Miniatures And Photographs(http://brantford.library.on.ca/localhistory/pdfs/reville1.pdf), Brantford, ON: Brant Historical Society,Hurley Printing, 1920. Retrieved fromBrantford.Library.on.ca 4 May 2012.

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Business data for Nortel: · Hoover's (http://www.hoovers.com/company­information/cs/company­profile.Nortel_Networks_Corporation.40eb3af6156856d9.html) · Reuters(http://www.reuters.com/finance/stocks/overview?symbol=NT) · SEC filings(https://www.sec.gov/cgi­bin/browse­edgar?action=getcompany&CIK=1119664)

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