Bay Networks Becomes Nortel’s Stepping Stone to IP

In a transaction worth an estimated $9.1 billion, Northern Telecom (Nortel, Santa Clara, Calif., threw itself into the IP integration race by acquiring Bay Networks (Santa Clara, Calif., The deal, one of the largest of its kind, places Nortel squarely in competition with companies such as Cisco Systems Inc., Ericsson Inc. (Stockholm, Sweden, and Lucent Technologies (Murray Hill, N.J.,

Nortel’s stated goal is to deliver IP integrated networks that will reach anyone, anytime and at any place in the world. Sam Alunni, vice president of marketing at Sterling Research (Sterling, Mass.), says that the world will see a convergence of voice and data in the future. "IP is the cornerstone of the future," he said. "That’s why you spend [close to] $10 billion on a company."

One of the cornerstones of the deal appears to be Dave House, president of Bay Networks. House will jump into the position of president at Nortel. Jeremy Duke, director of networking market research for the market research firm Cahners In-Stat Group, believes House will be the catalyst in bringing Nortel to the forefront of IP technology. "He’s very aggressive and he gets things done," Duke says.

In terms of bringing IP technology to implementation, Duke says that the only companies capable of competing with the combined Bay Networks-Nortel organization -- Cisco, Ericsson and Lucent -- will still have to play catch-up. Duke speculates that at least one of them will try to make a major acquisition, similar to the Bay Networks-Nortel deal, within the next 6 months.

Nortel plans to build on Bay Networks' presence in the enterprise and ISP markets. Expectations are that the company will capitalize on the combined companies’ networking systems products, particularly Bay Networks' Accelar switch routing for high-performance backbone networking and gigabit LANs, and Nortel’s Passport ATM networking products.

Once the deal is complete, Bay Networks will continue to operate as a wholly owned subsidiary of Nortel. Because of the quiet period required in the acquisition, Nortel declined to comment on the deal. The acquisition is still subject to approval by Bay Networks’ shareholders and by compliance with the Hart-Scott-Rodino-Antitrust Improvements Act. The deal is expected to complete by the third quarter of this year.