Origins Alexander Graham Bell conceived the technical aspects of the telephone in July 1874, while residing with his parents at their farm in Tutela Heights, on the outskirts of
Brantford, Ontario. He later refined its design at Brantford after producing his first working prototype in Boston. Canada's first telephone factory, created by James Cowherd of Brantford, was a three-storey brick building that soon started manufacturing telephones for the
Bell System, leading to the city's style as
The Telephone City. After Cowherd's death in 1881 which resulted in the closure of his Brantford factory, a mechanical production department was created within the
Bell Telephone Company of Canada and production of Canadian telephone equipment was transferred to Montreal in 1882 to compensate for the restrictions on importing telephone equipment from the United States. In addition to telephones, four years later, the department started manufacturing switchboards, at first the 50-line Standard Magneto Switchboard. The first general stockholders meeting was held on March 24, 1896. In December 1899, The Bell Telephone Company of Canada bought a cabling company for $500,000; a Canadian charter named it "The Wire and Cable Company". Northern Electric and Manufacturing further expanded its product line in 1900, manufacturing the first Canadian wind-up
gramophones that played
flat discs. In 1911 the Wire and Cable Company changed its name to the "Imperial Wire and Cable Company".
Northern Electric Company The construction of a new manufacturing plant started in 1913 at Shearer Street in Montreal, Quebec, as preparations began for the two manufacturing companies' integration. Then, in January 1914, the Northern Electric and Manufacturing Company and the Imperial Wire and Cable Company merged into the Northern Electric Company, commonly known simply as Northern Electric. The new company opened the doors on a new manufacturing plant in January 1915. This facility, located on Shearer Street, was the primary manufacturing centre until the mid-1950s. In 1922, Northern started to produce, for $5, the "Peanut" vacuum tube, which required only a single dry-cell battery. The use of alternating current was still under development during this time. The Northern Electric Peanut tube was the smallest tube made and drew only one-tenth of an ampere. During the 1920s Northern Electric made
kettles,
toasters,
cigar lighters, electric
stoves, and
washing machines. During the
Great Depression in the 1930s, Northern Electric was affected, like most other companies. From the beginning of 1930 through the end of 1933, sales dropped from $34 million to $8.2 million, with employees dropping from 6,100 to 2,400.
Independence from Western Electric In 1949, an
antitrust suit in the United States forced
AT&T/
Western Electric to sell its stake in Northern Electric to Bell Canada. AT&T spun off Northern Electric in 1956. Deprived of its Western Electric tie, Northern began developing its own products. In 1953, Northern Electric produced its first television sets using
tubes made by
RCA. Bell Canada acquired 100 percent of Northern Electric in 1964; through public stock offerings starting in 1973, Bell's ownership of Northern Electric and its successors would be reduced, though it continued to have majority control. In 1966, the Northern Electric research lab, Northern Electric Laboratories (the predecessor to
Bell-Northern Research), started looking into the possibilities of
fiber optic cable, and in 1969, began work on digitizing telephone communications. Also in 1969, Northern began making inroads into the US market with its switching systems. In 1972, it opened its first factory in the US in
Michigan. In the late 1960s and early 1970s, Northern began shipping its first
digital switching systems, one of the earliest such systems to be sold. Northern Telecom was, with Bell-Northern Research, in the early 1970s a part owner of
MicroSystems International, a semiconductor manufacturer based in Nepean, outside Ottawa. In 1978, Northern Telecom acquired
Data 100 and
Sycor, both American terminal manufacturers respectively based in Minneapolis, Minnesota, and Ann Arbor, Michigan. Nortel subsequently established Northern Telecom Systems Corporation (NTSC), a computer systems manufacturer in the United States the following year.
Northern Telecom and "Digital World" In March 1976, the company name was changed to Northern Telecom Limited, and management announced its intention to concentrate the company's efforts on digital technology. Northern Telecom was the first company in its industry to announce and deliver a complete line of fully digital telecommunications products. The product line was branded "Digital World" and included the
DMS-100, a fully digital central office switch serving as many as 100,000 lines, which was a key contributor to the company's revenue for close to 15 years.Starting in 1977, Nortel grew rapidly after the introduction of its DMS line of digital central office telephone switches, especially after the
AT&T breakup in 1984. Northern Telecom became a significant supplier in Europe and China and was the first non-Japanese supplier to
Nippon Telegraph and Telephone.
Deregulation In 1983, due to deregulation, Bell Canada Enterprises (later shortened to
BCE) was formed as the parent company to
Bell Canada and Northern Telecom.
Bell-Northern Research was jointly owned 50–50 by Bell Canada and Northern Telecom. The combined three companies were referred to as the tricorporate. As Nortel, the streamlined identity it adopted for its 100th anniversary in 1995, the company set out to dominate the burgeoning
global market for
public and private networks.
Optical boom and bust , 2001 In 1998, with the acquisition of
Bay Networks, the company's brand name was changed to Nortel Networks to emphasize its ability to provide services related to other communications network technologies. As a consequence of the stock transaction used to purchase Bay Networks, BCE ceased to be the majority shareholder of Nortel. In 1999, Nortel outsourced several of its manufacturing operations to North American contractors. During the optical networking boom, Nortel sought to bolster its long-haul optical transmission capabilities by acquiring Qtera Corporation, a Boca Raton, Florida-based startup specialised in ultra-long-reach, all-optical systems that enabled data transmission over distances up to 2,500 km without signal regeneration, thereby reducing costs and improving network efficiency. The deal was announced in December 1999 for US$3.25 billion in Nortel common shares. In 2000, BCE
spun out Nortel, distributing its holdings of Nortel to its shareholders. Bell-Northern Research was gradually absorbed into Nortel, as it first acquired a majority share in BNR, and eventually acquired the entire company. In the late 1990s, stock market speculators, hoping that Nortel would reap increasingly lucrative profits from the sale of
fibre optic network gear, began pushing up the company's share price to unheard-of levels despite the company's repeated failure to turn a profit. Under the leadership of
chief executive officer John Roth, sales of optical equipment had been robust in the late 1990s, but the market was soon saturated. When the speculative telecom
bubble of the late 1990s reached its pinnacle late in the year 2000, Nortel was to become one of the major casualties. Nortel's revenues would be dented by a saturated market and the failure of
WorldCom, which was a major customer. At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the
Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone. Nortel's market capitalization fell from
C$398 billion in September 2000 to less than C$5 billion in August 2002, as Nortel's stock price plunged from C$124 to C$0.47. When Nortel's
stock crashed, it took with it a wide swath of Canadian investors and
pension funds and left 60,000 Nortel employees unemployed. Roth was criticized after it was revealed that he cashed in his own
stock options for a personal gain of C$135 million in 2000 alone. Roth retired in 2001. His planned successor,
chief operating officer Clarence Chandran, already on sick leave due to complications following his 1997 stabbing in Singapore, decided to quit, however.
Chief financial officer Frank Dunn was eventually chosen as Roth's permanent replacement.
After the Internet bubble Accounting restatements Frank Dunn presided over a dramatic restructuring of Nortel, which included laying off two-thirds of its workforce (60,000 staff) and
writedowns of nearly US$16 billion in 2001 alone. This had some initial perceived success in turning the company around, with an unexpected return to profitability reported in the first quarter of 2003. The black ink triggered a total of $70 million in bonuses to the top 43 managers, with $7.8 million going to Dunn alone, $3 million to chief financial officer Douglas Beatty, and $2 million to controller Michael Gollogly. Independent auditor
Deloitte & Touche advised audit committee chairman
John Cleghorn and board chairman
"Red" Wilson to look into the suspicious results, who hired the law firm WilmerHale to vet the financial statements. In late October 2003, Nortel announced that it intended to restate approximately $900 million of liabilities carried on its balance sheet as of June 30, 2003, following a comprehensive internal review of these liabilities. The company stated that the restatement's principal effects would be a reduction in previously reported net losses for 2000, 2001, and 2002 and an increase in shareholders' equity and net assets previously reported on its balance sheet. A dozen of the company's most senior executives returned $8.6 million of bonuses they were paid based on the erroneous accounting. Investigators ultimately found about $3 billion in revenue had been booked improperly in 1998, 1999, and 2000. More than $2 billion was moved into later years, about $750 million was pushed forward beyond 2003 and about $250 million was wiped away completely. The accounting scandal hurt both Nortel's reputation and finances, as Nortel spent an estimated US$400 million on outside auditors and management consultants to retrain staff. Walter Robinson of the
Canadian Taxpayers Federation denounced the line of credit, calling it "
corporate welfare at its worst." On April 28, 2004 amidst the accounting scandal, three of Nortel's top lieutenants—Douglas Beatty, CEO Frank Dunn and Michael Gollogly—were fired for
financial mismanagement. They were later charged with fraud by the
RCMP. The trial began on January 16, 2012, ending with acquittals for all three. The
United States Securities and Exchange Commission (SEC) also filed charges against them and four vice-presidents for civil fraud.
Owens and Zafirovski After Dunn's firing, retired United States Admiral
Bill Owens – at the time a member of the board of directors – was appointed interim CEO. Nortel Networks subsequently returned to using the Nortel name for branding purposes only (the official company name was not changed). Nortel acquired PEC Solutions, a provider of information technology and telecommunications services to various government agencies and departments, in June 2005 and renamed it
Nortel Government Solutions Incorporated (NGS).
LG Electronics and Nortel formed a
joint venture in August 2005, with Nortel owning 51%, to offer telecom and networking solutions in the wireline, optical, wireless and enterprise areas for South Korean and global customers. Peter Currie, previously the Chief Financial Officer of the
Royal Bank of Canada, was named CFO of Nortel in 2005, having previously served as Northern Telecom's CFO in the 1990s. Gary Daichendt, the former Chief Operating Officer of
Cisco Systems, was hired as president and COO, and was expected to succeed Owens as CEO. Shortly afterward, Daichendt appointed ex-Cisco
Chief Science Officer Gary Kunis as
chief technology officer. Both Garys were concerned about the overall direction of Nortel, especially when compared to Cisco, their previous employer. Just three months later, Daichendt resigned after both his restructuring plan and his suggestion that Owens and Currie leave the company immediately were rejected by the board of directors. Kunis quit shortly thereafter. At the year's end, directors Lynton "Red" Wilson and John Cleghorn retired from the board.
Mike S. Zafirovski, who had served as president and CEO of
GE Lighting and then as
Motorola President and COO, succeeded Owens as president and CEO on November 15, 2005. Motorola filed a suit against Zafirovski's hiring, alleging that his new position would break the terms of the
non-disclosure agreement he had signed. Nortel agreed to pay $11.5 million on his behalf to settle the lawsuit. Nortel also paid out US$575 million and 629 million common shares in 2006 to settle a class-action lawsuit that accused the company of misleading investors about the company's health. Currie stepped down as Executive Vice President and CFO in early 2007. In February 2007, Nortel announced its plans to reduce its workforce by 2,000 employees, and to transfer an additional 1,000 jobs to lower-cost job sites. The Securities and Exchange Commission filed civil fraud charges against Nortel for accounting fraud from 2000 to 2003; the fraud was allegedly to close gaps between its true performance, its internal targets and Wall Street expectations. Nortel settled the case, paying $35 million, which the Commission distributed to affected shareholders, and reported periodically to the commission on remedial measures to improve its financial accounting. Nortel announced plans in February 2008 to eliminate 2,100 jobs, and to transfer another 1,000 jobs to lower-cost centres. As part of the reductions, Nortel shut down its Calgary campus in 2009. During its reporting of third quarter 2008 results, Nortel announced it would restructure into three vertically-integrated business units: Enterprise, Carrier Networks, and Metro Ethernet Networks. As part of the decentralization of its organization, four executive positions were eliminated, effective January 1, 2009: Chief Marketing Officer – Lauren Flaherty; Chief Technology Officer – John Roese; Global Services President – Dietmar Wendt; and Executive Vice President Global Sales – Bill Nelson. A net reduction of 1,300 jobs was also announced. As its stock price dropped below $1, the
New York Stock Exchange notified Nortel that it would be
delisted if its common shares failed to rise above $1 per share within 6 months. Rumours continued to persist of Nortel's poor financial health, amid the
late 2000s recession, and its bids for government funds were turned down. There is suspicion that industrial espionage and knockoff Asian products brought down Nortel or at least accelerated its demise. An extensive analysis by University of Ottawa professor Jonathan Calof and recollections of former Nortel executive Tim Dempsey have placed the blame mostly on strategic mistakes and poor management at the company.
Liquidation Protection from creditors On January 14, 2009, Nortel filed for protection from creditors, in the United States under
Chapter 11 of the United States Bankruptcy Code, in Canada under the ''
Companies' Creditors Arrangement Act'', and in the United Kingdom under the
Insolvency Act 1986. Nortel was the first major technology company to seek bankruptcy protection during the
2008 financial crisis. Nortel had an interest payment of $107 million due the next day, approximately 4.6% of its cash reserves of approximately $2.3 billion. After the announcement, the share price fell more than 79% on the Toronto Stock Exchange. Export Development Canada agreed to provide up to C$30 million in short-term financing through its existing credit support facility with Nortel. The Canadian government resisted characterizing its position on Nortel as a bailout. Nortel initially hoped to re-emerge from bankruptcy, implementing a retention bonus plan in an effort to retain its top executives during the restructuring period. These bonuses, totaling US$45 million, were targeted at 1,000 executive positions. At the end of January 2009, Nortel announced that it would be discontinuing its
WiMAX business and its agreement with
Alvarion. Nortel subsequently sold its Layer 4–7 application delivery business to Israeli technology firm
Radware for $18 million, after Radware had initially placed a
stalking horse bid. Nortel had acquired the application switch product line in October 2000 when it purchased Alteon WebSystems.
Wind-up With the worsening recession and stock market decline deterring potential companies from bidding for Nortel's assets, and many of Nortel's major customers reconsidering their relationships with the restructuring company, in June Nortel announced that it no longer planned to emerge from bankruptcy protection, and would seek buyers for all of its business units. After announcing it planned to sell off all of its assets, Nortel shares were delisted from the Toronto Stock Exchange on June 26, 2009 at a price of $0.185 per share, down from its high in 2000 when it comprised a third of the S&P/TSX composite index. Mike Zafirovski subsequently resigned in August, and Nortel's board of directors was reorganized with three members instead of nine. Nortel handed out $14.2 million in cash compensation to seven executives in 2009. Nortel also paid out $1.4 million to 10 former and current directors, and paid $140 million to lawyers, pension, human resources and financial experts helping to oversee the company's bankruptcy proceedings.
Nokia Siemens Networks made a
stalking horse bid to purchase Nortel's
CDMA and
LTE assets for $650 million. and Ericsson emerged as the victor in the following auction, with a purchase price of $1.13 billion.
Avaya won an auction for Nortel's Enterprise Solutions business, including Nortel's stake in Nortel Government Solutions and
DiamondWare, for $900 million, after having placed a stalking horse bid of $475 million. In November, Nortel sold its MEN (Metro Ethernet Networks) unit to
Ciena Corporation for US$530 million in cash and US$239 million in convertible notes, and its
GSM business at auction to
Ericsson and
Kapsch for US$103 million.
Hitachi purchased the Next Generation Packet Core assets. As insurance against judgments in class action lawsuits filed by former employees, John Roth filed in December 2009 for a US$1 billion indemnification from Nortel, joining the list of U.S. creditors. In February 2010,
Ernst & Young, the court-appointed monitor of Nortel's Canadian bankruptcy proceedings, reported that the assets of Nortel's
Health and Welfare Trust had a shortfall of $37 million in its net assets as of December 31, 2008. The trust supports pensioners' medical, dental and life insurance benefits, as well as income support for some groups such as long-term disability recipients. Also in February, Nortel negotiated a $57 million deal to wind up the health care and other benefits provided to former Canadian employees. Shortly afterwards, Nortel proposed spending $92.3 million on retention bonuses for 1,475 employees in its Nortel Business Services and Corporate groups, with $2.5 million in incentives going to Christopher Ricaute, president of Nortel Business Services; $27 million allocated for Canadian employees; and $55 million allocated for U.S. employees. The proposed plan was later extended by an additional $27 million. Claiming that the retention bonuses proposal was extraordinary, acting US trustee Roberta DeAngelis objected to the payment of $55.6 million to 866 employees. However, court-appointed representatives for Nortel's former employees, who are creditors in the Ontario bankruptcy court, have
signed an agreement to not oppose any employee incentive program.
GENBAND purchased the Carrier VoIP and Application Solutions (CVAS) unit in May 2010, as Nortel accepted its stalking horse bid of $282 million, with adjustments that decreased the net sale price to about $100 million, without a formal bidding process. Ericsson purchased Nortel's share in its joint venture with LG Electronics for US$242 million, forming
LG-Ericsson, in June 2010. Ericsson also purchased Nortel's final operating unit, the Multi-Service Switch division, in September 2010 for US$65 million. Nortel's
Ottawa campus on Carling Avenue was purchased by
Public Works and Government Services Canada (PWGSC) in October 2010 for a cash purchase price of CDN$208 million, to serve as the new home of Canada's
National Defence Headquarters. Nortel's 53.13% stake in Turkish company Nortel Netaş was acquired by
One Equity Partners (OEP) and Rhea Investments for $68 million in December 2010. The last major asset of Nortel, approximately 6,000 patents and patent applications encompassing technologies such as wireless, wireless 4G, data networking, optical, voice, Internet, and semiconductors, was sold for $4.5 billion to a consortium including
Apple, EMC, Ericsson,
Microsoft,
BlackBerry Limited, and
Sony, pending American and Canadian court approval. (Google had placed the initial stalking horse bid of $900 million and later upped the bid to $1,902,160,540, then $2,614,972,128, and eventually $3.14159 billion, which are references to
Brun's constant,
Meissel–Mertens constant, and
pi.) Bankruptcy filings state that Nortel owed former Canadian engineers $285,000 for patent awards that were not paid. In October 2011, the administrators of Nortel's British subsidiary lost their appeal to overturn a court order requiring them to pay £2.1 billion into Nortel's underfunded pension plan. Nortel's U.S. retirement income plan is now managed by the
Pension Benefit Guaranty Corporation. In January 2014, a pact between the U.S. and European divisions of Nortel was approved by a U.S. court. However, litigation continued. In April 2016, Nortel went back to court for a fresh round of legal arguments. Courts in the U.S. and Canada approved a negotiated settlement among competing creditors in January 2017. == Products ==