Three former Nortel Networks executives are being criminally charged in Canada for misstating the company's financial results in 2002 and 2003.
Nortel's former CEO Frank Dunn along with former CFO Douglas Beatty, and former controller Michael Gollogly have been charged with fraud, according to the Royal Canadian Mounted Police. The executives were fired in 2004 as part of a massive accounting scandal at the company. As a result of the scandal, Nortel, which makes and sells equipment to phone companies, was forced to restate earnings as far back as 2001. In 2005, the company admitted it had overstated revenue by $3.4 billion.
The three men plus another former executive had previously been charged in a civil fraud suit by the Securities and Exchange Commission in the U.S. The SEC suit accuses the former execs of manipulating the company's earnings from 2000 to 2004, when its stock started declining as a result of the telecom bust. Nortel is also suing Dunn, Beatty, and Gollogly for bonuses the men were paid in 2003.
Nortel said in a statement that it's been cooperating with the Royal Canadian Mounted Police. Nortel itself has not been charged nor has it been the target of the investigation.
Nortel Networks said Tuesday that it has developed new optical networking gear that can quadruple the capacity on telecommunications networks.
The new technology is designed to help network operators deal with bandwidth-gobbling applications like high-definition Internet video.
Nortel, the largest supplier of telephony gear in North America, plans to announce Wednesday that it has developed gear that can shuttle traffic across the Internet backbone at speeds of 40 gigabits per second, according to news wire service Reuters.
Nortel says the technology has the ability to provide a tenfold increase in network speeds, giving operators the ability to transfer data at 100Gbps. Denmark's TDC and the U.K.'s Neos Networks will be named as Nortel's first customers, Reuters said. Trials with other carriers around the world are currently ongoing.
Many carriers throughout the world are likely looking to upgrade their networks as customers use the Internet to access more bandwidth-intensive applications, like high-definition video. Today's high-capacity networks support speeds of 10Gbps, which is enough bandwidth to transfer about 1,000 high-definition television channels simultaneously.
A new upgrade cycle for faster-speed optical networking gear couldn't come too soon for Nortel. The company has been struggling to regain its footing after it was shaken by scandal and poor financial performance over the last few years. The company recently announced poor financial results and said it would cut 2,100 jobs, mostly in North America. It also has plans to move another 1,000 jobs to lower-cost locations such as China and India.
Telecommunications equipment maker Nortel Networks said it will cut more jobs as the company's losses widen.
The company's stock plunged some 13 percent on Wednesday to $9.96 after the company reported that its fourth-quarter earnings declined about 3.7 percent to $3.2 billion. The company reported a loss for the fourth quarter of $884 million compared to a loss of $80 million in the fourth quarter of 2006. The higher losses were due to a tax-related charge, the company said.
To help curb spending and get the company back on track, Nortel said, it would cut 2,100 jobs. It also plans to relocate about 1,000 workers to places where wages are not as high. At the end of 2007, Nortel said it employed about 32,500 workers. The job cuts should save the company about $300 million a year, but the company said it will also take a onetime charge for the plan of about $275 million.
Nortel is in a tight spot. The company is facing slowing demand for its traditional telephony gear. Chief Executive Officer Mike Zafirovski, who took the top spot at the company in 2005, has been trying to grow Nortel by focusing on new technologies. But it's clear the company is struggling. Part of the problem is its balance sheet. But another big problem is that the company literally missed the boat in the 3G wireless equipment market, and as a result has only small market share here in that segment.
The company recognizes its shortcomings and has been focusing on the next generation of wireless technology, namely by developing gear using the WiMax technology. Nortel has also said it's committed to supplying products for the competing 4G wireless technology called LTE (Long Term Evolution). But network builds using these technologies are still in their early days. In terms of WiMax, Sprint Nextel is the only major carrier in the U.S. to commit to using the technology. And its own financial troubles have called into question whether or not the network will actually get built.
Recently there have been rumblings that Nortel is in talks with Motorola to combine their wireless infrastructure businesses. This could be good for both of the companies. Together they would be in a much better position to address current GSM network builds in Europe and other parts of the world where that wireless technology standard is used widely. And at the same time they could better address markets like the U.S. and South Korea, where mobile operators use CDMA technology.
Nonetheless, Mark Sue, an analyst with RBC Capital Markets, says it could be a long time before Nortel is able to turn things around.
"Nortel's revamped management team is doing the best that they can in our assessment," he said in a research note on Wednesday. "Unfortunately, the prior management team at Nortel left the company with a very damaged balance sheet. And with limited resources and little currency to afford a major strategic rethink, the company may have to resort to a year of basic blocking and tackling."
Just when you thought its legal troubles were over, Vonage gets involved in another legal squabble with telecommunications equipment maker Nortel Networks.
On Friday, Nortel filed a lawsuit against Vonage claiming that the voice provider has violated nine patents related to its Internet phone service, including features such as 911 and 411 calling and click to call.
The lawsuit, which was filed in U.S. District Court in Delaware, comes in response to a suit Vonage is pursuing against Nortel. In 2004, a company called Digital Packet Licensing sued Nortel for infringing on three of its patents. Vonage acquired Digital Packet Licensing last year and is continuing the lawsuit.
For more than a year, Vonage has been caught up in one patent lawsuit after another. AT&T, Sprint Nextel, and Verizon Communications have all sued the company for allegedly violating their patents. In October, Vonage settled its suit with Sprint Nextel for $80 million. Later that month, it settled with Verizon in a deal that could cost the company a maximum of $120 million. And early in November, Vonage was in settlement talks with AT&T in deal that could cost it $39 million over five years.
As for its performance, Vonage is hanging in there, but there are still troubles. It actually reported slightly better-than-expected revenue numbers for the third quarter of 2007, pulling in about $211 million. This was a little better than some analysts on Wall Street had expected; they predicted the company would report $210 million in revenue. But Vonage is still struggling to keep customers it has already won. The company said it had added 78,000 net subscribers in the quarter, increasing the total to more than 2.5 million. But it is still churning or losing a lot of customers. The company reported an average monthly churn rate of 3 percent up from 2.5 percent during the second quarter.
At the end of the day, Vonage has a very tough road ahead. Not only has its reputation been damaged, but the company will be spending a lot of money over the next several years paying off its legal bills. The best thing it can do now is settle this and any other lawsuits quickly, so it can move forward.
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