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Educators wary in wake of Nortel bankruptcy

Acutely aware of how the sudden change or demise of an important technology vendor can wreak havoc on their ed-tech programs, school leaders across North America are watching closely as Toronto-based telecommunications firm Nortel Networks aims to reorganize after filing for bankruptcy protection last month.

So far, all indications suggest it’s business as usual for schools that rely on Nortel service or equipment. But after many schools were left with worthless service contracts or unfilled orders after computer supplier MPC Corp. declared bankruptcy and subsequently folded late last year (see "MPC’s collapse leaves schools in the lurch"), it’s understandable if some educators are concerned.

Nortel filed for bankruptcy protection in Canada and the United States in mid-January, just one day before the company was due to make a debt payment of $107 million.

Facing a sharp drop in orders from phone companies, Nortel used the bankruptcy filing to buy some time to explore restructuring options, such as selling off assets.

In a press release, Nortel President and CEO Mike Zafirovski said the company had been in the process of a turnaround since late 2005, but the "financial crisis and recession have compounded Nortel’s financial challenges and directly impacted its ability to complete this transformation. … Nortel must be put on a sound financial footing once and for all."

As of its last quarterly filing, Nortel had $4.5 billion in debt and $2.4 billion in cash reserves. Nortel said its cash remains $2.4 billion, but the company did not immediately reveal its total assets or its debt load.

During the telecommunications and internet boom of the 1990s, Nortel had more than 95,000 employees and a market capitalization of $297 billion. At one point in 2000, it accounted for one-third of the market value on the entire Toronto Stock Exchange. After the dot-com bust, Nortel had problems: an accounting crisis that sparked shareholder lawsuits, regulatory investigation, and the firing of key executives, including CEO Frank Dunn.

Canadian Industry Minister Tony Clement said the government is willing to help Nortel restructure as a viable company by providing up to $24 million in short-term financing and is open to discussing other loans.

In the meantime, some customers have been delaying orders from Nortel as the company’s viability has come into question, USB analyst Nikos Theodosopoulos said.

"Nortel has enough cash to run its business this year and probably a good part of next year as well," said Theodosopoulos. But he added that declaring bankruptcy would give the company "a better chance to preserve itself."

Given the long-term service contracts associated with telecommunications network equipment, "you really have to convince your customers that you’re going to be around," said Ping Zhao, an analyst with CreditSights.

In recent interview with the IP telephony blog No Jitter, Eric Krapf, president of enterprise solutions at Nortel, said there’s nothing to worry about.

"The major milestone that people should look for is for Nortel to continue to be in the marketplace, being proactive about the value propositions that we’re putting forward and the wins that we are having. And to that point, I’m very pleased to let you know, even since filing, we’re winning new customers and contracts on a global basis. It’s in the hundreds," Krapf claimed. "And these are not just replacements or run-of-the-mill projects."

He also vowed that customer support would not lag as a result of the filing.

"Customers have told us this is a critical area that we need to watch, make sure we support them the way they’ve become used to," said Krapf. "We measure our on-time delivery performance daily and weekly to our published lead times. Last week we had one of our best performing weeks ever, at 96 percent delivery to our published lead times. And so it’s proof like that that [prospective customers] do their due diligence on, and that gives them a level of confidence to move forward."

Nortel serves K-12 schools and higher-education institutions across the U.S. and Canada, providing communications technology as well as mobile learning environments and security solutions.

Kentucky’s Owensboro Public Schools uses Nortel equipment to give all teachers and administrators eMail and internet access, as well as integrate streaming media into its classrooms.

Nortel now provides Owensboro with all of its data network and telephone services. Nortel has published case studies with dozens of districts just like Owensboro, as well as university campuses, across North America.

"We’re not worried so far," said Ron Milliner, district technology coordinator for Owensboro Public Schools, in an interview with eSchool News. "We had to switch some things around just last week, and we received the replacements the next day just as our warranty specifies."

He continued: "So far, their service has remained top-notch, as it has always been. Obviously, we have concerns, but we trust that the reorganization will not affect the good working relationship that we have with the company."

In Canada, Nortel reportedly provides more research funding than any other private company.

In 2007, Nortel spent $1.8 billion on research and development, and it has projects under way at more than 20 universities around the world.

"We need them to be successful," said Jeffrey Dale, chief executive officer of the Ottawa Centre for Research and Innovation (OCRI), in an interview with the Globe and Mail of Toronto. "Nortel is at the top of the food chain in terms of working with academic institutions that support the research, but more importantly, that support the development of master’s students and Ph.D. students."

Dale said Nortel officials told him they plan to continue funding the company’s various educational programs, including a high-school course on networking technology. But he said he’s concerned about what could happen if the company fails to reorganize and is sold.

Several Canadian universities, including the University of Toronto, the University of British Columbia, Queen’s University, McGill University, and Carleton University, have received funding from Nortel for a variety of programs over the years.

Nortel also has a corporate signature community-relations initiative called LearnIT–an educational nonprofit that helps prepare teachers and students to develop 21st-century skills.

Even though Nortel filed for bankruptcy protection, LearnIT last month launched the Everyday Technology Toolkit (ETT), a project-based site that encourages educators and students to create short, one- to two-minute how-to videos about a piece of everyday technology.

In an interview with eSchool News, a Nortel representative said that "while any and all costs associated with our efforts will be closely reviewed and controlled, our partners who have adopted LearnIT and employee volunteers are actively engaged in promoting LearnIT initiatives in schools and communities, and that will continue."

The representative added: "In 2008, there were 2.5 million unique users who used Nortel LearnIT, and we are excited about building new relationships with visitors and users in 2009 and beyond."




Owensboro Public Schools

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