Nortel Looks Abroad for Growth

CEO Frank Dunn told analysts that China tops the list of emerging markets for Nortel's equipment and services.

BOSTON—As Nortel Networks gradually emerges from a near death experience over the past year and a half, the company is looking to grow by selling its equipment and services in new international markets.

Frank Dunn, CEO of the Ottawa, Ont.-based network equipment supplier, told a gathering of press and analysts here that hes gearing the company up to address significant opportunities in countries such as Russia, India, and especially China.

"Emerging countries can leapfrog developed countries. "In India, Russia and China in five to six years, the landscape could really change," Dunn told the gathering. "Today, Russia may be three generations behind, but in the future, you may see more state of the art technology in Russia than in North America," he added.

But China, with its huge population and growing economy, has almost unlimited potential as a telecom equipment market, Nortel executives asserted.

"China has 1.3 billion people, and poverty is going away due to economic reforms," said Bob Mao, president and CEO of the greater China unit of Nortel. He noted that the country now has 20 percent the worldwide telecom subscribers.

"China is very important to Nortels future," Dunn said.

Mao said that changes now taking place in China could open up opportunities for Nortel. "The market is presently going through discontinuities. We expect to become a more significant player."

Mao explained that the Chinese government is moving 25 percent of its population—some 200 million to 300 million people—to urban centers in order to make the country 50 percent urbanized in the next 10 to 20 years. The government will create 400 new towns of 500,000 persons each, and telecommunications infrastructure is needed for each of them, Mao said.

A significant bidding opportunity will open up later this year, when China issues four licenses for 3G wireless network deployment. Two of the licenses are slated to go to suppliers who are not currently players in Chinas wireless market, Mao noted.

Mao said Nortel was well positioned to compete for the contracts because of Nortels successes in established economies. "China is basically conservative. They want to see if technology is real and proven."

Lee Doyle, an analyst with International Data Corp. in Framingham, Mass., said Nortel has several characteristics that could prove successful in China. "Nortel is well-positioned because it is strong in wireline networks, wireless networks, and in global markets."

With 260 million wireless subscribers out of a current population of 1.3 billion, China will take years before its market is satisfied, Mao said.

The track record that Nortel brings to the table in China includes its work in India, said Chahram Bolouri, president of Nortels global operations. He pointed to a recent deployment of 60,000 km of optical fiber in India in less than a year. He also said the company is considering building a network operations center in India.

"There are very few companies in this world that can engineer, deploy and manage these networks," said Bolouri.

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The optimism with regard to foreign markets comes as Nortel attains stability following several years of reverses. "This is a much cheerier event than it was a year ago," Dunn said. "Were proud of the progress that weve made. Its been a tough 18 months, but data traffic is consistently growing."

Among the changes at the company is a greater emphasis on software than ever before. Having outsourced nearly all its manufacturing several years ago, Dunn said, "Nortel has re-invented itself to be a software-development house."

Of the companys current total of 35,000 employees, one-third are in research and development, Dunn said. Bolouri said most of those R&D workers design software, rather than hardware.

As to the kind of networks Nortel will be building in the years ahead, Dunn said, "The challenge now is that networks need to transform—to move to a packet multimedia environment." He added, "Were looking for a very exciting year."