Microsoft links up with Nortel

Microsoft on Tuesday ramped up its ambitious attack on the business voice communications market as it announced an alliance with Nortel Networks, the Canadian telecommunications equipment maker.

Launched late last month, the new communications strategy marked a broad push by the software company to build voice, e-mail and instant messaging into its desktop and server software. Potential new services include making it possible for office workers to see online when their contacts are available to take a call and to launch a conversation from their PCs, phones or any other device; and converting voice calls easily to email and vice versa.

“There are hundreds of millions of people who will be getting a new communications experience over the next four or five years,” opening up a big new software market as telephony and the internet converge, Steve Ballmer, Microsoft’s chief executive officer, said on Tuesday.

By building communications into more of its software, Microsoft “is redefining communications and moving into it as a major player, becoming a peer with Cisco and Siemens,” said Bernard Elliot, an analyst at Gartner. Failure to integrate internet-based communications into its PC applications would expose the company to attack from other online rivals, he added. “If Microsoft doesn’t do it, they’ll lose the desktop,” he said.

Microsoft’s attack on the voice communications market has sent waves through the telecoms equipment industry, raising the prospect of direct competition with companies like Cisco Systems, Nortel and Avaya.

The software company appeared to offer one response to those concerns with Tuesday’s announcement of a link with Nortel, one of the biggest makers of Voice-over-IP, or Voip, equipment. However, the software company looks to be on a more direct collision course with others in the industry, such as Cisco, whose own “unified communications” strategy closely mirrors that of Microsoft.

“We have very important aspects of cooperating [with Cisco] – but we have very important aspects of competition,” Mr Ballmer said.

Under the alliance with Nortel, the companies said that some of the equipment company’s employees would work alongside Microsoft developers at the software company’s headquarters to create new internet-based communications products. While keeping their salesforces separate, the two sides said they would also develop a plan to market their joint products and services, and to coordinate their separate sales channels.

“You can squarely say that Microsoft, with Nortel, is …in the business of voice quite clearly,” Mr Ballmer said.

According to Mike Zafirovsky, Nortel’s CEO, the alliance would produce “well over $1bn” in extra revenues for the Canadian company over the next three years, with much of it coming from selling services to companies that want to upgrade their existing networks to handle the new capabilities.

Nortel’s shares closed nearly 6.8 per cent higher on the news. However, at $2.09, they still stand stand some 60 per cent below their 12-month high.