Valued at around 250 bio USD

A Telecom giant

The company we are talking about is none other than Nortel Networks Corporation

Here is the story behind the ultimate fall of a Telecom giant. If one was active in the markets during the early 2000 period this company was one of the major players in the telecom sector in the world. At the zenith of its glory and power, this company was valued at around 250 bio dollars. It was the 9th most valued company in the world. It employed nearly 95,000 people around the world with around 100 locations in the US alone. When it collapsed in 2009 it had a legacy of almost 115 years. At one point its market cap constituted about 35 % of a major international stock exchange.

The downfall of Nortel is very much an untold epic story of economic espionage. It should make a great series for Netflix. Maybe it has already, and I don’t know about it. Nortel’s main offices were centered in Ottawa especially their R&D centers. Ottawa is a sleepy city and not like London, New York, or even San Francisco. Nortel brought life to the city. There was a booming tech ecosystem supported by many startups. They were the leaders in fiber optic data transmission systems. It held thousands of fiber optic patents and had invented a touchscreen wireless device almost a decade before the iPhone. Nortel was attracting brilliant coders from all around the world. The company was laying the foundation for the next generation of wireless networks, which would be known as 4G and 5G.

Ottawa is not a city known for glamorous living, fashions, or restaurants

But Nortel changed all that. Expensive sports cars and corporate jets became common. Extravaganza and outlandish behavior at company parties were common. A story is told that once a manager’s wife showed up in a one Mio Canadian dollar leather bodysuit with an anatomically correct gold breastplate and a 15-carat diamond nipple. There was a total display of vanity, wacky stuff, and craziness. Actually many didn’t know what to do with their money. All this outrageous growth and glamorous living made it a target for outsiders. The Canadian security intelligence service observed “unusual traffic“ suggesting that hackers in China were stealing data and documents from the company.

In the late 1990s the intelligence agency went to Nortel’s office and notified them. But the hacking and stealing of intellectual property continued unabated. By 2004 the hackers had penetrated into the senior management of Nortel. It was found out that roughly 800 documents were sent to China by none other than the CEO of Nortel Frank Dunn. He was also involved in the accounting fraud and was fired. Meanwhile, hackers had stolen passwords from most of the senior management and cleaned up stealing documents on product development, design & development, research & development, minutes, and much more. To date, no one knows where the data went in China and who hacked Nortel. The strong suspicion is that it is the Chinese government. They weakened a key economic and western rival and it promoted its own technology champions like Huawei technologies.

Huawei clearly denies that they have no part in this story. They claim that all their products have been developed by proper and legal methods and have not resorted to any nefarious means.

One thing for sure was as Nortel was falling Huawei was thriving

Huawei’s overseas sales were $50 Mio in 1999 but had risen to $5 bio in 2005. A 100-fold increase. Huawei has been repeatedly accused of intellectual property theft, most notoriously in 2003, when Cisco said the Chinese company had stolen source code verbatim from a router, cloning its help screens and even copying its manuals, typos and all. Finally, Huawei hired about 20 Nortel scientists who had been developing the groundwork for 5G wireless technology. I can go on writing more about Huawei’s business practices in the global markets but there is no point. I am sure the readers can connect the dots.

By 2009 Nortel was bankrupt leaving a lot of investors sad and disappointed. Probably if they had the sort of the services of a company like Subex they would have still been in business. But we don’t know, as there were many other internal irregularities at the company too.

As a saying goes in my mother tongue “If the fence eats the crop, then what do you do“.


Author: ©Abraham George, CEO, Founder of AllSeasonsPTL Capital Management Ltd.

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