Nortel eyes intell

Now that Nortel Networks has acquired PEC Solutions, a newly formed American spin-off is positioning itself to go after the federal market.

Nortel, a Canadian firm, already had a strong presence in the U.S. government, but its foreign ownership blocked it from some business opportunities, particularly those with intelligence agencies, said Chuck Saffell, who will be chief executive officer of Nortel PEC.

Once the company decided to create a U.S.-based spin-off, it needed an established player to do it, Saffell said. "Creating a U.S. entity requires some separation from the parent," he said. "In order to do that, we needed to have infrastructure to operate as a U.S. entity."

PEC was happy to serve in that role, said Dave Karlgaard, a founder of PEC and now vice chairman of the Nortel PEC board.

"We had a great run and had a very good reputation we've built in this market," Karlgaard said. "But we saw a size situation. We had grown to the point where we were pretty big as a small company but still too small to go after some of the jobs we wanted to go after."

The combined company, with about 2,000 employees, will solve the size problem while leaving the firm agile enough to respond to changing needs more quickly than larger competitors can, he said.

Warren Suss, president of Suss Consulting, said the acquisition will not create an unbeatable player — the market remains highly competitive — but it should bring some advantages that neither company had alone.

"Nortel has been very successful in the federal arena, especially in selling large PBXs to military bases and to agencies like the Department of Energy who have a requirement for very heavy-duty, large-scale switching infrastructure," Suss said. "But they're under serious attack from companies like Cisco [Systems] that have been coming at them from the data side."

Saffell said the combined company will provide end-to-end network solutions, which is what customers want.

"It makes a very valuable and compelling value proposition for the government customer," he said. "In a nutshell, that's why we were very interested in the acquisition and why we were interested in PEC."

Like all other telecom firms, Nortel PEC sees the forthcoming Networx contract as a major opportunity. But Saffell said it would be unwise to view it as the sole source of future business.

"There's much more to government communications," he said. "The government is consolidating a lot of contracts into these large [indefinite-delivery, indefinite-quantity contracts], and we need to participate in those."

As the net number of contracts shrinks due to such consolidation, the large IDIQs become the targets, he said. "We see the same things happening in the Department of Defense," he added. "There's a plethora of opportunities to go after. I think we're much better positioned now."

Nortel brings its own technologies to the table, he added. "Don't forget that Nortel is a unique company in its own right," he said. "It's not just voice, it's not just data. It's voice, video, data, wireless, wireline. [For] all of those, Nortel has an offering."

PEC has close connections to the intelligence agencies that Nortel wants access to, Saffell said. "We wouldn't have the freedom to operate in that environment if we didn't create the U.S. entity," he said. "What could happen is that you could have some opportunity in which some pieces are just business processes and some pieces are classified. We could only be considered as a partner for the pieces that were business processes in the past. Now we can go after all of it."

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