John Roese’s Blog CTO, Nortel

Location: Flying to Vancouver

First, let me apologize for being absent from blogging for a bit. I’ve had an unusually busy and complex several weeks. Hopefully, you all found the guest blog from Andy Lippman interesting and had a chance to see some of the recent dialog I have had with other bloggers, such as Om Malik (GigaOM). One of the challenges of blogging when you have a few other full-time jobs is finding quality time to write and, ironically, when you’re not able to write it’s amazing just how much interesting content and dialog emerges, creating a pretty significant backlog of topics. I hope to tackle many of those topics in the coming weeks.

Over the last few weeks, I’ve been in three cities in California, as well as in Boston, Ottawa, and London. I have met with some of our strategic partners (both go-to-market and technology), regulators, investors, media and customers key to our business. One interesting topic that surfaced in many of those dialogs was around whether the use of wireless technology in the enterprise would transform the enterprise networking structure.

As you may recall, last July we announced an initiative called “the unwired enterprise,” where we predicted that by roughly 2010 enterprises would be able to use wireless technology as their primary access network. We said we believed that the combination of innovation beyond 802.11n WiFi, together with the emergence of such 4G wireless technologies as LTE and Mobile WiMAX, would create a model where abundant and functional local and broadband mobile capacity would be real. This would mean the end of the over-wiring of campus LANs, a change in the value chain, and - most importantly - an expectation that our applications and business tools would be built for the mobile world first and primarily (versus today, where they are designed for wired campus LANs and then adapted for wireless).

The interesting thread in the various dialogs, though, was the discussion around “if broadband wireless and 4G emerge, why would anyone need a campus LAN at all? Why not simply move every application and device to the cellular carrier 4G network and eliminate the enterprise network entirely?”

Now before you react too quickly, a pretty strong case exists to make this move. First, if we look forward to LTE and Mobile WiMAX, we can see multi-megabit per second capacity with very low latency and the added bonus of large-scale broadband mobility. Additionally, 4G networks have a very enterprise-centric operating model, where security is designed to decouple the end system from the infrastructure (providing the flexibility required in order to connect your own devices to the network). A 4G network will also have the characteristic of being a “pipe in the sky,” meaning that it is a packet-based IP transport without strict design for any specific applications (just like a corporate LAN or the Internet). All in all, 4G networks will look much more like large-scale WiFi networks or even corporate Ethernet LANs than they will resemble a cellular network of the present or past. That’s pretty appealing and, given the innovation going on in mobile devices (e.g., smart phones and ultra mobile PCs), it seems like this could be a reasonable model for the enterprise.

As good as that sounds, however, the case can also be made that there will still be a solid need for the enterprise to own and operate its own internal network. The reasons for this position are just as compelling.

First is the issue of trust and control. If you own your own network then you are, as they say, master of your own destiny. Given the import of connectedness for business systems, giving up this critical control is unlikely for most CIOs and enterprises. While carrier networks and cellular systems are today a big part of the overall enterprise architecture, they are used in very specific and measured models, usually accompanied by strict service level agreements and the associated costs of such guarantees.

Second, while the 4G world is pretty fast for a cellular system, the capacity innovation inside the enterprise is amazingly rapid. With 802.11n, we are seeing in excess of 300 megs per channel and with some new innovation upwards of 15 or 20 channels per area, for a total of 6 gigs of capacity. Realistically, a system with multiple gigabits of capacity shared among a small number of users anywhere in a campus is possible. This is close to the kind of capacity the wireline gigabit world is offering today and a few orders of magnitude faster than even 4G. Given that capacity mismatch, the allure is there for enterprises to continue to offer local high-capacity networks, be they wired or wireless.

Third, is the issue of intelligence. In most enterprise networks, transport is not just a pipe but a system that allows the CIO to build applications that utilize network intelligence to provide secure and directed services. Consider role-based access control, where a CIO can use the internal network to provide secure access to the company’s employees while also using the same network (in a different policy) to grant visitor or guest access. That kind of flexible security control is easy to do on an internal LAN but would be much more complex in a network provided by a large-scale operator or carrier (where one network would need to support all the roles of all the enterprises sharing it, not just one enterprise’s policy set). In addition to roles and security, the corporate LAN is also increasingly being used to provide location information, to qualify presence and availability to unified communications systems, and to trigger appropriate multimedia interaction that is based on the context of the user and his/her environment (depending on location, state and mobility, for example). This kind of flexible context-based service is a key to the intelligent enterprise experience and would not be easily replicated in a public network system.

Finally, there is the cost issue. Speaking as a former CIO, one thing CIOs like are services and technology that are free once you own the system. Internal voice and data networks fall into that model; cellular and wide area systems do not. The idea of having a networking option that allows for applications and communications to operate at zero cost in even some of the footprint of the enterprise is hard to give up.

So, the question is: “Will innovation in cellular mobile networks render the enterprise LAN unnecessary?” My opinion is “no.” Although we will clearly see dramatically expanded use of 4G networks to support the enterprise, we will simultaneously see a shift in the enterprise to a more mobile WiFi network working with that 4G ecosystem. This combination of both public and private high-capacity, mobile, intelligent wireless access networks is the essence of the unwired enterprise.

This shift to the unwired enterprise will happen over the next several years and with it will be a transformation of the application models used in the enterprise (a shift towards mobility-based applications as the default). It will also mean that the preferred end system will be inherently more mobility centric (laptops, UMPCs, smart phones and, most significantly, multi-network roaming between the 4G and WiFi campus). And, finally, as this new reality emerges the intelligent interaction between infrastructure and applications will create more targeted and intuitive collaboration experiences.

As with any prediction, time will tell. We’ll have to wait and see what actually happens and how everything plays out. The punch line though is that the evolution of the unwired world will change much of what we understand about networks and the new result will be an unprecedented level of interaction between public and private networks and a value that is much higher than ever before.

I welcome your thoughts on this topic.

I’m pleased today to host a guest blog from well-known industry thought leader Dr. Andrew Lippman. Andy, one of the founding directors of the MIT Media Lab, is half-way through a year-long sabbatical with Nortel as our first (but certainly not last) Visiting Fellow. The possibility of Andy doing his sabbatical at Nortel was explored by both sides during our Technical Conference last year, during which MIT hosted 300 of our top engineers for an evening event. A professor of Andy’s stature taking a sabbatical to work for a corporation is quite unique and says a great deal about Andy’s opinions of Nortel and our vision.

Among our key objectives in bringing a visionary like Andy into Nortel was for him to bring an outside perspective into the company and to challenge our technology community, on an on-going basis, to think differently. He's making a strong contribution and we’re delighted to have him with us.

Andy Lippman

Some ten years ago I saw my first mashup. At the time, we at the MIT Media Lab, sponsored by Nortel, were also working with Federal Express, and they had just put package tracking on the web. At the same time, they were tracking the users who tracked them. One day they noticed that they were getting a lot of hits from Grand Rapids, Michigan. Now, why would the good citizens of Grand Rapids want to track so many packages - what was generating the traffic?

It turns out that Steelcase is in Grand Rapids, but that alone didn’t explain it. Steelcase doesn’t typically ship office furniture by Fedex. But what they do send overnight are all the keys that people have lost to those filing cabinets and that absolutely, positively have to be delivered the next day. Steelcase had written a program to scrape the Fedex site, grab the delivery information, and insert it into its own web site to support its customers, who wanted the ability to track the information directly on the Steelcase site. Now, of course, mashups are the order of the day, and a future where much of what is on the network is a malleable resource rather than a top-to-bottom service is pretty obvious. But, in the 90's it was a dream.

Where will it go from here, and when? Here are two quick thoughts that might spur some further thinking. These thoughts arise from interactions with the people at Nortel combined with a history at MIT. Both are more hip than you might think.

First, it seems clear to most everyone that in very short order the wireless devices we carry will opportunistically tune into any resource that is available to do whatever business needs to be done. The notion of a single "account" tied to the device is about as tired as the black rotary dial phone. Some of these resources will originate with carriers who transport data over great distances on your behalf, but many will bypass them. Carriers will provide some of these valuable services but, as a minimum, they will provide high-capacity pure pipes.

Much of the traffic will be local and will not use a large area network at all. It will be based on context and place - terms with meanings far deeper than the simple words imply. One of my students at MIT, Nadav Aharony, is building protocols for social, proximate networking that allows you to pass messages and tasks between friends as you run into them. Membership is not solely based on who you are, but on what groups and activities you are engaged in. Nadav (with others) has built a demonstration called "snap and share" that automatically migrates a group photo to the cameras of everyone who is in the picture and their families. We have all been in such shots before, where we nominate one person or a passerby to take our picture, and they have to do it with at least five different cameras so that each owner has his or her shot of the whole gang. With snap and share, one picture will do. In fact, we might as well all stand in front of a camera that is already poised in the environment, and just grab the image from it. Nadav's network also would let you know if one of your online dating possibilities is in the bar that you just entered, or pass along literature to your cohorts at a convention. His point is that you yourself are a wandering suite of services and data that you want to distribute among individuals and groups that you know, without prior arrangement, potentially without your intervention, and often without uploading and downloading it. He is exploring the informational value of just bumping into people. In Nadav's lexicon, you are a carrier.

Other resources in the environment are just as interesting. We ought to be able to tap into supercomputers in the walls that do things for us that are a bit too complicated or power-hungry to do on a handheld device. Translating a phone call from one language to another, for example, will take a while to be efficient on a portable device, but it is easier for a machine that has a better sense of context; think of the subtitles in a movie - they are better done when you know what the movie is about. Likewise, you can't easily hold up your phone and pick out the violin in an orchestra much less identify Josh Bell as the player, or aim your camera at a group and count the people it sees, much less whether your wife is in the shot. These are things that can be done with help from other computers and other mikes and cameras. We ought to be able to mashup reality and have our portable tell us that if we head for checkout counter number three from where we are, we can make our purchases and get to the bus stop in time to catch the bus that is three blocks away and will get us to the train station on time.

My second thought is that this future is arriving far faster than any of us thought even as recently as a few years ago. It used to be that we worried about disruptive technologies. Fifteen years ago, a hallmark of the Media Lab's style was that we built highly cost-ineffective technologies just to see what they could do. We figured they would eventually be affordable. We showed the distant future. Now, everyone anticipates and expects change. The disruptor is the speed of change, not the fact of it. Consider how quickly YouTube revised television and news, things we had researched for twenty-five years. Or recall what Napster did to the recording industry overnight. In other words, disruption is not the disruptor, its rapidity is.

My explanation is that the "clockspeed" of society depends on the age at which we are introduced to the dominant technology of the time. When that was the automobile, society churned on a 16-year cycle -- that's the age when you got your driver's license. Intelligent communications dominates today, and we are introduced to that at age three. You know this if you have two children who went through high school three years apart. One was pre-Facebook and the other was post. Their experience is so vastly different that they can barely talk to each other. In other words, society adapts and evolves far faster today than it did in the past (and it is being driven by the kids...)

From what I've seen so far, Nortel seems to have gotten the message. They are not just listening to kids, they are hiring them -- close to 500 new engineers in the last 15 months alone. Inside the company, they call them "new-grads," and they are simultaneously trained and sincerely listened to. Some of them are experimenting with techniques that take reality, spatiality, and personal context, and mash them into services and communications that are defined on-the-fly, are personalized and automatic. John wrote about the tip of that iceberg when he described a virtual "Global Information Session" a couple of weeks ago. What he didn't tell you was the real action occurred after the presentations, when about 100 of us remained in the space. We bumped into each other and had private and group side conversations. In less than an hour, we had become at home in a world that didn't exist and caught up with buddies that were time zones away. How long before whole companies become mashups like this?

IT and communications are becoming one discipline, each learning from the other. What was once an IT function is now a product definition, and there are no more plain vanilla users. Today's workers live by mashups, invent solutions on-the-fly and don't wear the strait jackets that once were the order of the day. Tomorrow's workers won't distinguish between corporate life and social actions. Their VPN is everyone they know. And tomorrow is just 12 hours away. Watch this space to see how we will make this future happen.

Location: Ottawa, Canada

One of the most significant challenges of being in the public eye and communicating to the press is the fact that headlines often fail to capture the true essence of the details, and often even the details are taken out of a broader context. That reality can certainly create significant confusion when complex topics are discussed. As a good example of this, yesterday I gave a talk at a Technology Executive Breakfast in Ottawa to discuss the progress we’ve been making against the transformation of R&D at Nortel. In this blog post, I would like to share some of that content. As you digest the details, though, I ask you to consider the headline “Nortel to rethink R&D work plans, executive says” and ask if it is an accurate reflection of the overall message.

Well over a year ago now, we began a significant R&D transformation effort within Nortel, where we began to look at R&D from a “total Nortel” perspective (versus from the perspectives of individual R&D groups within each of our lines of business). There were multiple reasons why we began this transformation. Among them … the fact that we were spending over 50% of our R&D budget on late-lifecycle products; our R&D spend as a percentage of revenue was much too high; we had very little re-use of technology going on across the businesses; we lacked common processes; and the employee satisfaction scores of our R&D teams were getting worse. Most of this was the natural result of the collapse of the telecom bubble and the dramatic changes in Nortel as a result. What became increasingly clear, though, is that if we did not stabilize and strengthen our R&D organization, then we could not reasonably expect to execute on our business strategy to lead in the era of hyperconnectivity.

In order to transform an R&D function that is both large (about 12,000 people) and distributed (many business units and all geographies), the effort needed to be comprehensive and positioned for the long term. Given that, we embarked on our path. This path included three major pillars. First, we needed to make sure we had a balanced, responsible, and stable R&D operating model; second, we needed to create a framework for world-class operations and process excellence; and third, we needed to recognize, cultivate, and celebrate our world-class people talent. Let me talk about each of these areas in a bit of detail.

Creating a balanced, responsible, and stable R&D operating model

To reach a viable long-term R&D operating model, we needed to do many complex and difficult tasks. First, we needed to get the total R&D spend to the 14-15% of revenue range -- more in line with the industry norm and our target operating model. This involved significant changes in R&D over the past 2 years and, unfortunately, did involve both people reductions and the shift of our global footprint. This is old news and is almost completed based on our decisive actions over the past 18 months. Today, we are operating inside of that target window.

Additionally, we needed to shift resources to new and emerging technologies. We did this through a strategy called “20-60-20”. Rather than spending more than 50% of our R&D budget on late-lifecycle products, we committed to moving resources so that only 20% would be late-lifecycle spend, 60% would be focused on growth and mature product activity, and a full 20% would be directed to emerging and new technologies and markets. Given the fact that we spend more than $1.7 billion a year on R&D, moving to this new alignment clearly meant some significant shifts of workforce to both new formations and new projects and skills. Again, this is old news, as we have already announced and executed on this and today, after less than 18 months, are operating at almost exactly 20-60-20.

As part of this first pillar, we also created an incubation fund, in order to open new addressable markets outside of the existing business units. Today, 3% of R&D is now devoted to “startups” within Nortel.

And, finally, last year we began to look at our R&D footprint in terms of developing a skills-based R&D site strategy. Today, we have a consolidated global, cross-business view of where we have critical masses of expertise. This skills-based site strategy is a more strategic way of doing R&D. It will make it easier to move resources to new jobs and opportunities within sites/skills cluster, and will create less disruption from an operational perspective (e.g., if we ramp down one project at a site, it will be much easier to redeploy those resources to another project that is ramping).

Creating world-class processes and operational excellence

The second pillar of R&D transformation at Nortel has been a focus on creating exceptional operations and processes. Here again, the transformation is complex but mostly complete. We first looked at structure, and in early 2006 we launched an effort to create a common engineering group. This group, consisting of thousands of R&D personnel, was created to provide a common foundation that could be leveraged by the business unit R&D teams. Under this group, we centralized platform work, common components, common management, silicon development, tools and R&D processes that could be leveraged across a range of product teams. This “build once, use many” approach goes directly to creating efficient re-use in the company and allows us to avoid hundreds of millions of duplicate spend in each area. Today, for example, almost all of our Carrier solutions leverage common platforms (work that was begun by Richard Lowe, our president of Carrier Networks and a strong proponent of this model) and as such are being delivered faster and at lower cost and greater scalability than before.

We also recently created a centralized R&D operations role under the leadership of Tony Pirih, who reports to me and oversees R&D operations – on a consolidated basis – across the company (with all other R&D leaders reporting into him on a dotted line). This consolidated management chain allows R&D to collectively act as one (one of the Nortel core principles that Mike Z articulates), to make rapid decisions and to develop cross-business unit processes to, again, drive efficiency and scale.

We have also made the decision to adopt the CMMI process and operations approach to institutionalize continuous improvement in R&D. CMMI is generally seen as the gold standard for process, and the results of a disciplined process and operational structure are well understood. We have now completed much of our baseline, have begun the efforts, and are starting to see the results. CMMI is a long-term commitment to process efficiency and quality, and unlike other initiatives in this list, is much more evolutionary than revolutionary.

Finally, we have added (or, in some cases, re-established) a set of new (and missing) functions to the company. For example, we have reconstituted a core industrial design group (Nortel historically was well-respected as a leader in this space with its Design Interpretive group, which was eliminated during the bubble burst) and have created centralized Design to Value and Design Cost Reduction groups to drive cost reductions and margin improvement.

A Renewed Focus on Our People

The third, and in my opinion the most important area of R&D transformation, has been a renewed focus on our people. You can measure your people in many ways, but to me the two that matter most are their skills and their satisfaction. On the R&D skills side, Nortel is rich in talent. In fact, one of the main reasons I joined Nortel was because of the technical strength of the R&D teams. On the satisfaction side, two years ago Nortel was suffering from a continued decline in R&D ESAT. Much could be attributed to the state of the industry and the negative events of the past 5 years, but the additional factor was that a true focus on cultivating talent in R&D had been minimized for quite some time.

In order to address this area we again launched a series of initiatives to transform the people side of Nortel. In the last year, for example, we have launched a new “Nortel Fellows” program, which recognizes our best technical experts. We also held our first annual technical conference last summer, bringing together 300 of our top technical people to collaborate and invent the future. And, last fall, we held a number of formal recognition events for our patent creators. This IPR recognition was driven by Mike Z’s understanding of the importance of IPR to Nortel’s future and his passion about recognizing and thanking our technical teams for the extra time and effort they take to invent and capture those inventions - essential to a healthy R&D environment. This year, we have launched a Distinguished Member of Technical Staff recognition program (the level below a Fellow) and are revamping our technical ladder (career path) to ensure that top technical talent cannot only work at Nortel but can progress their career here. Finally, we have dramatically accelerated our new graduate hiring with about 1000 new grads entering Nortel last year.

The result of many of these people efforts (as well as the other initiatives I mentioned above – such as directing more of our R&D dollars to the front end) is starting to pay dividends. For the first time in quite some time, we are seeing a statistically significant rise in R&D ESAT and we continue to be able to attract world-class talent globally.

The amount of work and the complexity involved in R&D transformation is obviously significant. What may not be obvious is that this has been going on for some time and by any reasonable measure has resulted in a huge positive change in our R&D posture. And this is what you would and should expect from us, whether you’re a customer, partner, employee and/or a shareholder. Our ability to operate R&D more effectively and at lower cost, to contribute to the improved operating margin of the company, and to create a stronger technical position for the company should resonate with all. We are not done with this process but the approach is structured and we believe world-class.

As a final note, let me go back to the headline comment at the start of the blog... “Nortel to rethink R&D work plans, executive says”. This would have been a great headline in the summer of 2006. Today, it is a bit out of context and while the observation that we clearly did re-think R&D a few years ago is true, we are now well into executing on that comprehensive R&D transformation and are indeed making solid, measurable, progress.

Location: Ottawa, Canada

Thanks to all for the comments and dialogue on the previous posts. Today, I'll get back to discussing technology, which is the real purpose of this blog.

One of the goals that drives me and certainly one of the big challenges and opportunities for the industry is to figure out how we can achieve a better-than-reality communications experience through the use of technology.

I wanted to share with you an event that happened at Nortel this week that represents a step on that journey.

Yesterday, I held a global employee session within a virtual mixed-reality world, using a prototype platform we’re investigating as part of an incubation effort. We had 150+ people participating in the virtual environment, hundreds of others participating by congregating in real-world auditoriums or large meeting rooms (where they could see and hear on large screens what was happening in the virtual world, through the “eyes” and “ears” of one of the Avatars), and others participating from their desktops using more traditional web conferencing tools.

The experience was fantastic. I was able to present, dialogue with employees, and answer questions within the virtual world but also in a way that all of the employees using other more traditional mediums – audio and voice conferencing and sitting in auditoriums – could also be a part of.

What was different about this, versus doing a large company meeting in an environment like Second Life, is that a host of different technologies could be part of an integrated experience within Nortel’s own enterprise application architecture. Everything was linked to our telecom infrastructure, corporate security and identity management systems. In other virtual reality experiences, like Second Life or multi-player on-line gaming systems, you need to go into their footprint and are limited by their capabilities. For example, although a name may be attached to an Avatar, you have no way of really knowing who that individual is in the real world. Yesterday, the virtual experience (complete with high-quality spatial audio) became part of our own IT ecosystem.

There were a few minor glitches along the way – to be expected with any prototype – but it was successful and allowed us to accomplish the task of a quarterly update to a globally distributed work force. The reality of it also sparked a huge number of new potential applications and uses. In the model of learning by doing, this kind of real immersion into new systems is a critical path to future innovation.

Our goal is to create a better-than-reality communications experience through technology. Today that’s just not possible. During conference calls, unless you know the speaker’s voice, you can’t identify who is speaking. Although telepresence is a dramatic improvement to the teleconference, facilities are costly, not widely available, you have to be in a particular place at a particular time, and there are issues with scale.

Although today’s broadband networks are giving us the ability to put communications wherever we want to, if we simply put legacy communications paradigms into these mobile and extended environments, we won’t really solve the problems. What we need to do is to create something that allows an experience that is at least equivalent to – if not superior to – a real world experience anywhere the broadband network exists. So, step 1 is to build a broadband network. Step 2 is to improve the experience by including all of those attributes that make the human-to-human experience exciting and effective.

That’s why much of our research and next-generation investment is focused on this area – identifying what makes the real-world experience special and effective and then replicating those capabilities through technology.

In that respect, I’d love your input. What is it about the real-world face-to-face experience that makes it a superior one over any technological experience that exists today? Is it visual? Emotive? Spatial? Dynamic? Simple? Transparent? Etc. And what are the technologies that you think could help replicate that experience?

Location: Ottawa, Canada

First of all, thanks to everyone for the spirited commentary. I appreciate your passion. Although many of the comments were “off-topic” (as Bob pointed out in #26), I think for the most part it was a worthwhile and interesting dialogue. Although realistically I cannot possibly respond to every input, I do want to offer a few comments and observations on some of the key themes that came through, so I’ve picked a few specific comments that I think capture the themes.

Theme 1 – “Stock Price Down, Nortel Bad”
Fred, #20, made an interesting statement that the CEO of Nortel is bullish about the company’s prospects (“Nortel has turned the corner,” “Nortel is a stronger company now”), yet the stock price is down. That is certainly a statement of fact. The CEO (and for that matter, the CTO ) and most of the organization are bullish on the prospects of this company given our 112-year history, our culture of innovation, and the progress we’ve made to date on the transformation (which I wrote about in the last post). But, yes, the stock price is down for Nortel, as it is with every one of our competitors. Tech is down. Large macroeconomic issues are at play. The market is bearish. And Nortel, like its peers (perhaps more so than some) is being impacted. I’m a technologist, not an economist, but here are two observations I’ve made about stock prices over the years: 1) the telecom industry tends to over-rotate; and 2) stock prices are rarely an indicator of the current and realistic performance of an industry or a company. Consider the stock prices of 1999-2000 versus the actual performance of the industry at that time, and then ask yourselves if that degree of inaccuracy could also be manifesting itself today in the low stock prices of many companies, including Nortel.

Theme 2 – The New Ads
With respect to the actual topic of the post – our new advertising campaign – there were some interesting observations and opinions, which I respect … ads inspire emotion and our reaction to them is mostly subjective. A couple of points I’d like to clarify/highlight though. The comment from Required (#3) – “Nortel obviously sees itself as a global outfit, not based in Canada/NA” – is an interesting one because of the negative overtone in which it was made. The reality is that, yes, Nortel is a global company and about 50% of our revenues come from outside North America. In fact, although our headquarters are in Canada, only about 7% of our revenues come from Canada. We have a global footprint and we do business in 150 countries around the world (not Antarctica :-)), so the ads attempt to cover the fact and the reality that the telecom opportunity is indeed global, which is consistent with our strategy.

Torben (#17) offered some interesting and insightful assessments of what he sees as the strengths and weaknesses of this technology/product-focused advertising campaign, the first of its kind and scale in Nortel for quite some time. One of the limitations, he felt, was that the ads failed to highlight Nortel differentiation. My perspective is somewhat different. Every one of the ads actually does focus on an area where Nortel has exhibited leadership and technological differentiation, which I discussed in some detail in the blog entry itself. In a 30-second ad, though, I agree that it’s hard to articulate the details of differentiation in any depth, and that’s partly why I also encouraged those of you looking for more to read the Nortel Technical Journal. I encourage you to download it and then determine whether or not Nortel has technological depth and differentiation.

For me, the ads resonate and do a good job of capturing the themes of innovation, the need for the telecom world to evolve, and the broader challenges the industry is facing. I also think they put Nortel into the discussion, reinforcing that we have an opinion and a strategy and are worthy of consideration. If the ads at least put the Nortel brand in front of the customer base and spark some consideration, then they are functional.

Theme #3 – Lack of Nortel executive participation in the blog
Another theme throughout was about the lack of Nortel executive participation in this dialogue. First, I’m actually impressed with the dialogue you had among yourselves, which is exactly what an Internet 2.0 should facilitate and, as Optimistic said (#29), I think the real value came in the constructive comments and thoughtful observations. For the record, I DO read all of your comments (as do others in Nortel) – and some have responded (including our Tax Expert and Marketing VP for Carrier) – but it’s unfortunately not possible to respond in a timely manner to everyone. Doing a separate entry and addressing the comments in bulk is the most efficient way for me to participate, so if I don’t comment directly and immediately, don’t assume I don’t care or that I don’t read your comments. I do, but there are only so many hours in a day and much more to do in the transformation.

That transformation is also taking the energy and focus of other executives. Many of the questions you were asking are similar to the ones asked by the financial analysts during the recent Earnings call – which is the formal way that Nortel communicates its financial progress. This channel is transparent though, and available for all to hear. If you have not listened to the Q4 Earnings call, I encourage you to do so. You can access it here. Many of your questions are addressed there, and you can hear firsthand from Mike about where we are in the transformation. Additionally, all of our investor events are accessible online, so feel free to watch or listen to the playbacks.

Theme #4 – New Products
And finally, a significant amount of dialogue was spent on discussing the new product pipeline. Another Nortel Watcher (ANW - #37), obviously with some internal experience at Nortel, described a host of products that were great technology, positioned for the market, and abandoned at the launch pad. And he is absolutely correct. Several years ago, this company – and many others in the industry – because of the pressure in the post-bubble era became very focused on existing products and platforms and, by in large, did not deliver many new products to customers. What is incorrect, however, is the assumption that Nortel is operating that way today. While not all new product ideas become real products, in the last two years we have delivered in the neighborhood of 300 major new, feature-rich products to the market and, more importantly, have created a pipeline of new innovative technologies.

In fact, we are today investing 20% of our R&D dollars in new technologies, up from single digits a year and a half ago. That pipeline is starting to yield fruit. Yesterday, in fact, we announced our 40Gig/100Gig Optical solution (as Bob recognized today in #66). This solution quadruples the network’s capacity without complex network re-engineering or significant capital and operating expense. And we are already selling our solution to important customers around the world, including Verizon, Neos Networks, and TDC. In fact, we have more than 20 40Gig wins/trials to date or planned with this solution. And, within the next several months, we will begin to ship our Agile Communication Environment (ACE), which will allow us to inject communications functions into any applications framework. It’s a real product, developed in the last year, and it’s now hitting the market.

Additionally, over the last year, we have shifted 3% of R&D dollars into incubation projects – start-ups within Nortel that are rapidly creating new market-expanding and forward-looking technologies outside of the existing business unit structure. The first of those products should hit the market this year. Will they all be successful? No. But, quite frankly, we have turned the engine toward new technologies and the delivery of those new technologies, and the last year has been probably the best year Nortel has had in a long time in getting new technologies and products out the door.

So, great points ANW (#37). For the record, I offer two corrections. You mentioned the fact that Mesh was one of those products suffering under the previous model. You are right. However, last year we moved that product line into the WiMAX business unit to better align with our go-to-market strategy and also created a dedicated business, marketing, architecture, and supply chain structure to enable it to thrive. Since then, Mesh has started to focus on the emerging market, which is where we believe the largest short-term opportunities are. And we’re making good progress. We now have #2 market share (based on $), according to an Infonetics report published a few weeks ago.

The second correction is related to MCS5200. The MCS5200, now named AS5200, together with our CS2000 Session Server Lines, is our market-leading SIP application server that has shipped over 5M SIP lines to leading customers like Orange, Telefonica, Bell and many others.

And, lastly, many (#36) makes the point that some of our new technologies – LTE, PBT, 40Gig, Unified Communications (which are actually highlighted in the commercials) – are in fact unproven, or at least the market has not solidified around them.You are absolutely correct, but I would argue that these are new technologies in new markets and the only way to grow the business is to participate in early markets with superior technology. By being there, we have the opportunity to compete and win.

Bottom line … I’m an optimist, but I’m also a realist. This is a company, as Mike Z has said repeatedly, that is in transformation. We are restoring a great icon to its appropriate place as a leader in the industry. This is a multi-year process that will require a dramatic change in our organization and our business. At the end of the day, the reason I take the “glass is half full” approach is because this industry – even with change and economic turmoil – is exciting. And it’s exciting because it is bigger today then it was yesterday, and it will be bigger tomorrow than it is today. Why? Because we haven’t solved all the communications problems, nor connected all the people, nor created in the electronic world the equivalent of human-to-human communications in terms of transparency, experience, and effectiveness. And Nortel is an exciting place to be. We have a vision and a strategy for our transformation. And that transformation is real, it is happening, and we are in better shape as a company than we have been for years.

Thanks to all for your input and comments.

Location: Ottawa, Canada

In recent months, many of you have commented on or asked questions about our marketing efforts, believing perhaps that we were not marketing our technology as aggressively as our competitors, and concerned that we were losing mind share opportunity.

Nortel Technical Journal

I will ask Lauren Flaherty, our Chief Marketing Officer, to do a post in the future to give you some insights into our progress in this area (which is impressive), but today I wanted to draw your attention to just two specific initiatives: one, the launch of our new advertising campaign and the other, the current issue of the Nortel Technical Journal.

New Advertising Campaign

About a month ago, Nortel launched a new global advertising campaign, beginning with CNN, but that also includes print and on-line advertising. It’s targeted at telling key decision-makers about our innovative technology or offers in the areas of optical transport, telepresence, 4G, unified communications, and carrier Ethernet/PBT.

I have included YouTube links to the ads (below) for your viewing pleasure. The ads do a good job of associating Nortel’s innovative technology with our philosophy of using that technology to make business simple. As I’ve talked about in other posts, our technology is about creating a better future for IT and telecom not just a different one. As a few examples (and what comes out in the ads)...

• Our 40Gig Optical systems can operate over fiber plant that is already in the ground. No one else does this. So, with Nortel’s technology, capital cost and time to deploy 40G is substantially less than competitors’ offerings. This also makes scaling the core of telecom and the Internet simple. We’re doing the same with 100Gig.
• Our PBT solutions have a proven CAPEX and OPEX savings over MPLS in the metro area of over 50% each. This means you can scale the network but also drive cost and complexity out of the system - the essence of simple in my view.
• Our Unified Communications solutions allow a linkage between telecom and IT systems that has never existed. The idea of being able to go from an information application to a communications experience within the same environment saves huge time and cost, and significantly improves productivity. Being able to find the people you need, connect to them in the best way and essentially automate much of the complexity of communication makes business simple.
• The same story can be told for the new immersive experience of telepresence that keeps you in the office but able to have a face-to-face experience with others around the globe.
• And, the seamless mobile experience of the new 4G wireless world makes our connectedness a pleasantly productive experience rather than a burden. All helping simplify our technical experience and lives.

It’s good to see this kind of public visibility for our technology innovation and its connection with a theme such as simplicity.

Here are the video ads (on YouTube)

• Nortel Unified Communication
• Nortel 40G
• Nortel Telepresence
• Nortel WiMAX
• Nortel PBT

Nortel Technical Journal

For those more interested in the details of the technology, I encourage you to take some time to read the latest issue of the Nortel Technical Journal. The articles are written by some of our key technology people who are making a difference in Nortel and in the industry. The articles talk to Nortel’s value prop in a number of areas and provide the technical depth that I think many of you are looking for.

One of the articles focuses on some of the key technologies being developed by our Wireless Technology Lab to change the economics of wireless access. This team has been leading the way in wireless for years. Another looks at PLSB (Provider Link State Bridging), which builds on our PBT innovation and will make it possible for carriers to deploy much larger and simpler pure-Ethernet infrastructures than previously thought possible. Other articles talk about our work in leveraging SOA and Web Services to communications-enable applications and processes and in developing “building blocks” that can be combined and orchestrated to quickly provide customized solutions for our customers. There’s also an intro from me that talks at a summary level about where we’re focusing our R&D efforts.

The videos and the Tech Journal are just two of many initiatives underway to help get the message out about our technology and how it’s being used/applied to change the industry and the end-user experience.

Let me know what you think.

Location: Ottawa, Canada

Over the past year, some of the “non-technical” comments from many of you have been focused on what you consider to be the lack of visibility for Nortel in the public arena from a marketing and advertising perspective. My intent was to post a blog today about our new advertising campaign, but given the elephant that’s in the room – re: the visibility we actually did receive this week around our Q4/2007 financial results – I thought I’d offer some thoughts and perspectives and defer the advertising entry ‘til next week.

It’s pretty clear from the comments that many of you are very passionate about the business and about Nortel, and that’s a good thing. For those of you, however, who are forming opinions about the company based solely on the stock price or the headlines – which were brutal, as headlines tend to be when restructuring is part of the news – I’d encourage you to take the time to dig a little deeper. I think you’ll find some good data and some strong proof points that might make you feel more positive about our progress.

I’m not going to reiterate the results here, but would encourage you to take some time to listen to the call that Mike Z and CFO Pavi Binning held with the investment community on Wednesday. It will give you some insights into the company and why I remain optimistic about our future. A playback is available here.

In particular, I would draw your attention to Chart 12 in the slide package that was used during the call, which in a nutshell captures the past two years of our transformation journey and what lies ahead (and we are certainly not naïve to the challenges). (The rest of the deck provides the details and proofpoints.) Essentially, two years ago, we were losing share in most segments; we had an uncompetitive operational and cost structure; and we had operating margin losses for four out of the five prior years. That’s when we launched a major, multi-year transformational plan to recreate Nortel into what Mike Z describes as “a high-performance company that is consistently profitable and is known for its technology innovation, outstanding quality and operational excellence.”

Two years later, we recognize there is still much to do, but progress we have indeed made. We’ve rebuilt market momentum and have restored customer confidence (a number of charts in that same deck will show you a list of major and significant customer wins); we are on a better earnings trajectory than any of our peers; we have significantly improved our operational and cost structure (6th consecutive quarter of gross margin improvement and our operating margin for the quarter was the highest it’s been in 12 quarters); we’ve grown faster than the market in many segments; we’ve rebuilt the company’s leadership (have a look here – world-class leaders with proven track records); and employee satisfaction is up.

Every major function in the company is going through a transformation of some sort and each can tell an encouraging story of progress. On the R&D front alone, we’ve accelerated the shift of R&D dollars toward new and emerging markets and technologies and are close to operating at our target R&D distribution of 20-60-20 (20% of the R&D budget directed at emerging technologies; 60% at core/sustaining; and 20% at legacy); our advanced technology research labs are continuing to pioneer breakthroughs; we’ve increased the reuse of technology across the company (build once – use many); we’ve improved our plan of record predictability; we’ve put new recognition programs in place for the R&D community; we’ve established a portfolio management board that ensures there is process, rigor and discipline in the management of our overall portfolio and future investments; we’ve increased the hiring of new grads into the company; etc. etc.

Every function in Nortel, I would argue, is in a stronger position than it was two years ago. We ARE making progress.

The one point from our announcement that might be worth highlighting in order to clarify some confusion around the loss we reported is related to the deferred tax asset write-down that Nortel took. Without the tax write-down Nortel actually had net income of $154 million. I’m not a tax expert, so in order to explain it I thought I’d copy here the explanation that Peter Look, our VP of Tax, shared with employees in response to a number of questions that came in on our employee blog:

“What are the Canadian deferred tax assets? In Canada, Nortel has about $1 billion of unused R&D tax credits, $1 billion of tax losses from previous years and about $0.5 billion of future tax deductions not claimed on any tax returns yet. We “wrote-down” a portion of them in Q4.

Could we have avoided a write down? No, we’re required every quarter under accounting rules to look at how much we can reasonably expect to use and over what timeframe we think we can use them. A lot of factors come into play in making that judgment. Please note that this is just “accounting” and that the tax benefits are still available for us to use as future conditions warrant.

Why now? There were a convergence of events in Q4 that interacted negatively with each other. Among them were 1) a 3.5% tax rate cut enacted in Canada in late-December which stretched the time horizon to use the R&D credits and 2) a continued strong Canadian dollar versus the US dollar (about .85 in beginning of year versus close to par at end of year) that devalued the stream of future Canadian taxable income (expected to create the tax to be sheltered by the assets), because our Canadian business unit earns a bunch of its income in US dollars.”

Bottom line: We’re on a journey to transform this company to once again be the great company that it was, and we’re making progress. I came to Nortel about 1.5 years ago to be part of what I continue to believe will be a tremendous transformation story. And, I’m as committed now as I was then to helping drive that transformation.

Location: Flight from London to Ottawa (returning from Mobile World Congress)

After a good few days at Mobile World Congress in Barcelona, my single biggest conclusion is “Oh, what a difference a year can make”. I have been in this industry long enough to know that the one thing always true about the telecom and IT industry is that it is a continuous journey of change. Some people believe that the past or even the present defines the future, but I am not one of those people. I am an optimist. I fully believe that we can shape our future and that having a strategy and then executing the tactics needed to deliver on that strategy puts you in control of much of how that future emerges.

Why this philosophical rant? Well, quite frankly, if you compare Nortel and the telecom industry of today versus one year ago, it is clear that although you cannot fully predict the industry you can clearly influence its path. Let’s compare a few year-over-year examples of this thought.

A year ago, Mobile World Congress was actually called 3GSM. As the biggest event in the carrier industry and with a name like 3GSM, a company like Nortel - who a year ago was espousing the need to accelerate 4G and supporting technologies like WiMAX, LTE, and UMB - didn’t seem to fit the image of mainstream telecom and wireless. Shouldn’t we have been showing more GSM technology instead of all this “distant future technology”? Were we being overly optimistic that this slow-moving industry could actually accelerate?

Well, this week the show was all about the reality that this industry did, in fact, accelerate. Technology like WiMAX is viewed as nearing mainstream adoption, and technology like LTE is being realistically accepted as destined to be deployed as early as 2009-2010 in multiple markets. In fact, the CDMA base has gone from being the outsider to the lead market for the first incarnation of the now-accepted global harmonized technology for the next mobile broadband networks: LTE. If you are honest with yourself, you must admit that most of the pundits didn’t expect the telecom world to be at this point today. Most were far less ambitious because this industry has historically moved much slower than it has in the past year.

A year ago, the wireless industry was a stand-alone pillar of telecom. What wireless did or did not do had very little impact on other pillars of telecom, such as wireline networks, communications applications, VoIP, or even the broader applications ecosystem of IT.

Today, we have a wireless industry that is part of a synergistic convergence of IT and telecom. You cannot discuss 4G without a deep dialog on how the wireline network will scale to provide backhaul at better cost per bit and greater capacity than ever before. You cannot dialog about 4G without exploring the new applications that are becoming possible with the new capacity and cost equation of OFDMA and MIMO technology in wireless. You cannot consider wireless networks without including the carrier VoIP market, which is the agreed-upon method that will be used to make voice and real-time communications possible in these new networks. And you cannot consider the fate and shape of the wireless industry without including IT companies like Microsoft and Google and technology companies like Apple in the total view of the industry.

Without a doubt, we are now seeing the realization of the “atom chart”, with Wireless, Wireline, Carrier, Enterprise, Infrastructure and Applications converging into a new ecosystem of communications. There is no stand-alone wireless future, but rather a future where wireless is a part of something much, much bigger: the converged IT and Telecom worlds.

And, finally, a year ago, the wireless industry was about connecting people and handsets to the mobile network. Today, that is only part of the story. The hyperconnectivity we envisioned and began talking about well over a year ago is becoming a mainstream dialog in this industry. Yes, there were lots of new slick handsets at MWC (including offerings from LG, Motorola, Google, Samsung, DoCoMo, and NEC, to name a few), but there were also lots of new devices and applications that were not tied to the traditional image of the cell phone. The Amazon Kindle, broadband-connected automobiles, gaming systems and even smart phones that could arguably be described as more PC than phone given the applications in use on them, show the early reality that wireless is about connecting anything that would benefit from being connected, and not just about the traditional end points of the past.

The bottom line is that there are many aspects of the last year that give me confidence that this industry is both accelerating and heading in a direction consistent to the path we are on. That’s good news. The reality, tho’, is that it’s still a journey and the critical task at hand is execution to capture the market as it emerges.

From that perspective, the observation I can make is that the playing field has become a lot more level in the last year, where some of us are executing much better than a year ago and others (including some of our competitors) are stumbling (much to the surprise of many who thought they were invulnerable to the whims of the market). The race is on, the future is pretty clear, and the market is open to change.

I look forward to seeing what Mobile World Congress 2009 will be like and to look back to see what will have changed this year. My bet is that this industry will continue to change more rapidly than most anticipate and that it will be different than we expect. But, regardless of the change, I do believe that it is an opportunity to alter the vendor landscape and our relative position within it.

I have included a number of links to various MWC 2008 summaries and announcements for those of you who might want to see some of the detail of the changes and events mentioned above. Enjoy.

• Mobile World TV
• Light Reading TV
• http://mobileworldcongress.mediaroom.com/
• http://www.lightreading.com/
• CTO Super Panel
• Top 10 trends at Mobile World Congress
• LG shows latest LTE technology
• Nortel 4G demos at Mobile World Congress
• Nortel demonstrates industry’s first WiMAX VoIP call controlled by 2G/3G voice network
• Nortel Video: Summary of Mobile World Congress

Location: Barcelona

Just arrived in Barcelona this weekend for Mobile World Congress, which promises to be an exciting conference. I’ll be meeting with customers over the next several days and will also be part of a panel discussion tomorrow on LTE (called "The OFDMA Battleground - LTE Standards").

I plan to post a blog or two about the conference in the coming days, but in the meantime I took the opportunity to take advantage of video-taping capabilities that were on site at the Nortel booth today and thought I’d share some initial thoughts with you “in person”.

You can access the 2-minute clip here.

Location: On flight from Las Vegas to Boston

In response to some comments late last year and earlier this year about the slow pace of blog entries … for the record, I just want to let you know that I AM trying to pick up the pace a bit - just difficult sometimes with the day job.

But, I think/hope I’m making progress. Here’s another one that posted today on Internet Evolution, which was created by some of the founders of Light Reading.

When will we have enough new building blocks to truly create something revolutionary in terms of what telecom can enable? Today, we are seeing new capabilities, technologies, and economic models emerging that are creating some interesting telecom experiences that might just change the way we work, play, and live. Let’s consider the new building blocks, or at least the most obvious ones.

First, we now have mobile medium- to high-speed data connectivity options emerging that are cheap enough to be embedded in a wide range of form factors and devices. The Kindle from Amazon embeds CDMA data services directly into the device without the user having any direct interaction or subscription with the operator of the CDMA network. Connectivity is just a function of the device, not its primary identity.

Second, read more ...