Egypt, new dimensions, new frontiers

Mr. Tim Watkins, President of Nortel Networks

Interview with:

Mr. Tim Watkins

Cairo, March 3rd, 2000

Maidenhead Office Park Westacott Way
Maidenhead Berkshire SL6 3QH - UK
Tel: +44 (0) 1628 43 26 37
(ESN 560-2637)
Fax: +44 (0) 1628 43 39 98

Nortel is a well known multinational - could you give us an overview of its current operations and major financial figures?

Nortel a global organization. This year we will likely be approaching USD 30 billion in turnover. We have around 80 thousand employees and our market cap is around USD 120 billion. Its one of the best kept secrets in the world, competing with Lucent and Cisco for domination in the new internet market and internet infrastructure.

Over the last 18 months we have seen dramatic changes in Nortel. We have moved on from being an organization (which is 100 years old), steeped in history and making its name by moving into the digital telecommunications world. During the last 18 months we have seen our stock price rocket from around USD15 last year to around USD120 today - the most phenomenal growth. This is mainly thanks to our CEO, John Roth, who has completely changed the companies culture, its key thoughts, he has been responsible for famous right angle turns which he has taken the company through to the success today. What this has meant is a strategic spending initiative, buying Internet related companies. Around 18 months ago we bought a networking company "Bay Networks" for 7.2 billion dollars; we bought around 10 other companies all relating to the Internet applications for the Internet; we have spent around 12 billion dollars on acquisitions in the last 18 months and positioned Nortel as the global leader in the internet telecommunications market.

Essentially, our concept is redefining the economies of the Internet-related markets, and delivering profitable Internet capability through four main pillars. One is wireless Internet; we are all involved in that. The second pillar, which has seen the most dramatic success, is with building the new optical Internet. The third pillar is developing Internet telephony and the last pillar is Intranet services. In principal what we are seeking to do is to build a new Internet that is no longer choked by old technology. It is basically building a faster, less expensive and more available Internet. The concept is built on an optical base that is much faster than the old Internet, redefining the economies of scale, of speed, the cost and the access to the Internet. As you know, the Internet is great, but we say it is "choked" because there are too many people trying to get on the internet highway. It is a bit like the roads in Cairo, and there are too many cars and too few roads. So what we are building are massive highways, with almost limitless capacities and a new generation of switching technology, which enables that back traffic to be switched almost instantaneously. Actually the choke points are both the roads and the access. Because we have developed this strategy of building a newer, faster, cheaper and more profitable Internet, the market has recognized this through phenomenal growth in our stock price.

In the optical world we are dominating this new generation of optical Internet. In fact, if you look at the statistics, we have won the last 18 contracts in Europe out of 25 contracts. These are huge value contracts and where the operators are seeking to build new pan-European or even global optical networks.

Ireland has become the IT hub of Europe. What is your involvement there?

In Ireland we have two manufacture plants, where we produce many of our enterprise-related products, or PBX products. Once again we are number one in the world for PBX equipment. Our plant in Northern Ireland is where we are building most of our optical equipment.

In comparison, Egypt has ambitious plans to become the IT hub in the Arab region. Do you think that this is feasible, and do you think that Egypt is doing enough to put itself in this position?

I think it is feasible but I think there is along way to go from a regulatory position. Egypt is probably the most attractive, most open and most business-friendly country in the northern part of Africa. So I think it is more than feasible.

In fact, Nortel got involved with Ireland in quite a big way. We developed and supplied a lot of the alternate operator equipment for the major Irish companies. Some of these organizations include Esat, Digiphone (which is a mobile network where we supplied all of the mobile and the wireless GSM infrastructure) and on the fixed telephony side we provided all the switching equipment, so we are well familiar with building alternate carriers, traffic handling equipment. I think that in Egypt opportunities are tremendous, which is why Nortel is now showing a considerate interest in this market.

When did you decide to set up your operations in Egypt, and why did you choose Egypt at this point in time?

Nortel is developing in Europe at a tremendous pace - we now have revenues at around six to seven billion dollars, just in Europe. We have around 23,000 employees.

In Egypt itself we have always had a presence through distribution for enterprise products. We have always found it quite of a difficult market to penetrate at the carrier level because it is a non-deregulated market and our competitors traditionally controlled most the business of Telecom Egypt by themselves. We want to change all of that because we now think the time is right, the traditional relationships need greater stimulation and that with all that I have said in regards to our positioning strategy in optical Internet, wireless Internet and telephony, we are determined to make this market part of Nortel's.

In fact we have recently won a USD 36 million contract with Telecom Egypt. The financing was provided under USAID and this is the first significant contract that we have taken with Telecom Egypt. Now we want to implement that network successfully, it is a telephony-only network but we now want to use that as a base to build and develop further contracts. The direct operations have been very recent, we have just opened our offices, and we have a strategic relationship with Tritech from Raya Holding. They have been a distributor of ours for some time but we are now developing the relationship further with our carrier products, optical products and other carrier related products.

We are very excited. I saw the chairman of Telecom Egypt today and various others, they where all very welcoming. It is a competitive market for sure, and there are new operators in telecoms setting up, such as Orascom and MobiNil, who represent great opportunities for us to supply our wireless equipment. We are number three in the world in wireless telephony, and in some markets we are number two, so it is a very strong opportunity for us.

As a matter of fact, Orascom has just acquired Telecel. What is your relationship with them?

We are already a big supplier to Telecel. We already have 8 GSM networks, with supplies into Telecel, so it enhances our position with Telecel and I think it opens up even more opportunities for Internet applications, equipment and other wider GSM equipment infrastructure as well. We are really pleased about that because we have built a relationship with Telecel which is very strong.

What are the major market segments that you are focused on here in Egypt?

Each of those four sectors that I spoke to you about offers real opportunities. Internet-wise the market is not mature, but that presents opportunities to develop the new model of Internet both with Telecom Egypt and the upcoming Internet Service Providers. There are big opportunities in the optical, IP infrastructure, ATM infrastructure and of course e-commerce applications. We are also very excited about the opportunities to supply call centres. All of those sectors are interesting but principally it is the Service Provider sector, building the new switching contract, competing for the optical award and really developing new Internet services and infrastructure here.

I understand that you are involved with Vodafone Airtouch as well?

We do have relationships with Airtouch in the US and we are expecting to develop the relationship further in Egypt, and indeed in Europe. We are talking to many of the Vodaphone Airtouch executives to develop a relationship in new areas.

I understand that you have a regional headquarters in UAE, and offices here in Egypt too. Is your Egypt office geared specifically towards the local market, or is it part of a regional expansion plan?

We already have four offices in the Middle East, in Dubai, Abu Dhabi, Beirut and Tunisia. We are opening an office in Riyadh within the next month. The office in Egypt is really the beginnings of the project to implement this new contract and we envisage Egypt to be a potential main office, that is, the regional office for Nortel's operations in the Middle East.

You also mentioned your agreement with Tritech, could you expand on this?

Really it is a very simple arrangement; Tritech has always been a very strong distributor for Nortel's 'Enterprise' range of products. We have strong relationship in Egypt and we are seeking to leverage those relationships. We have agreements with them to provide representation for us in many of our carrier products, so we are developing those relationships further and putting a lot of effort into training their employees.

Tritech and their newly formed subsidiary ProNet are going to be critical partners for us in Egypt. They are good associates to have, as they are using good technology and understand Nortel's product range. Naturally, we are going to be developing this relationship further.
Do you find it difficult to fulfill the demands your company makes on you with the limited human resources available to you here in Egypt?

Yes, there is clearly great diversity in markets across the word. In some of the European markets that we operate in, we are moving very quickly and taking numerous hundred million dollar contracts in record time, and we cannot expect things to happen that quickly here. My responsibility as Tim Watkins, President of the Service Providers Division, is to drive the Nortel business into there heart of the PTT's and AOs of Europe, the Middle East and Africa. Traditionally we have been extremely successful with the alternate carriers, which are the new operators in Western Europe. We have not had such good success in the PTT markets. So that is my role now, to develop very, very strong penetration into the national PTT's. That is why we see Egypt as one of the major opportunities.

We have not yet discussed the challenges that face Nortel, not just in Egypt but the world in General. Could you brief us on these?

As I mentioned earlier the time scales for product delivery have been cut dramatically from a three-year product development cycle down to between three to six months. The market is moving so quickly that we have to develop new products and new services. We either do that in-house or by acquisition. So one of the challenges we face is developing an acquisition strategy, which is aggressive, agile and rapid.

We have developed a highly global approach to developing these products rather than something that is just applicable to North America. This means that when we try to sell these products in Egypt and elsewhere, there is a realistic understanding of what is required. The pace of integration into the new online economy is slower in Egypt than it is in, for example, the USA, but we are ready to provide assistance in this field in order to help define the new generation of Intranet services, and be in a position to compete with the new start-ups and alternate operators that are arriving. The Egyptians have a good idea of what is required in this industry and what can be achieved, and we are in a position to help them reach there objectives.

What do you expect to come from the Egyptian market, and what do you think the benefits to Egypt will be from Nortel's development in here?

We see tremendous potential for Nortel and as well as potential for the Egyptian economy. If you try to make an Internet connection in Egypt, it is not an easy task. There is a tremendous amount of work to be done to upgrade the networks, and at the heart of what we are seeking to provide is a new world-class infrastructure built upon the new economies of scale, based on the new optical Internet that is faster and less expensive. There is tremendous potential for both Nortel and Egypt. That's true for the fixed line world, the data world and the multimedia world too.

We recently had an interview with the His Excellency the Minister for Telecommunications, and he was very keen to get multinational companies involved in his ambitious programs. Can you envisage any collaboration with the Egyptian government on projects such as this, for example in training?

I think we have to play our part as we are a world leader in telecommunication services. If you look around the world, we have played our part in many developing countries in South America, and the Far East. We see a discrepancy between but the present capabilities of the Egyptian network as it is today, and the tremendous demand that is out there. So yes, we have a important role to play. That could be 'training the trainers', developing the applications that will work with the Internet or many other aspects. We are very eager to get going and build those relationships. We think that Telecom Egypt are more than ready to bring Nortel in to the fold.

On your web-site you use the slogan 'tell us what you want the Internet to be'. Now, I would like to turn that question to you, if I may?

"What do you want the Internet to be" is our advertising campaign and its been running in the printed press, CNN and national advertising all over North America and it is now operational in Europe. We are asking this question to make more people aware of the Internet's ability to be so many different things to so many different people. We asked this question to thousands of people and the diversity of their answers was amazing.

In fact, our advertising is utilizing well known 'hero' figures, such as Michael Johnson, and asking them the same question. In fact, most of our advertising has been based around Michael Johnson, the athlete, but we have now adopted another 20 - 30 'heroes', people like Carlos Santana, and they all have different comments to make about what they want the Internet to be. We are trying to develop a greater awareness of the diversity of requirements in everyday people, people like you and I, famous people, businesses and giant cooperations. They all want the Internet to be a little different but they all want access to it, and they want access quickly.

Would you say that your company is sufficiently customer orientated?

Sufficiently? I think you can always become more customer orientated but we fully understand our client's requirements. We want to position Nortel as a company that is at the heart of the Internet revolution, as the most responsive organization that is supplying both infrastructure and Internet services. Our network globally is one of the biggest in the world. We have achieved this through using our own call center technology, our own PBX and Data technology together with our own optical technology so I think it's fair to say that we absolutely 'walk the talk'.

Do you have a message for our international readership, concerning Nortel Networks?

What we are building globally is a new high performance Internet, and we think the world is now ready for this. Our time has come. We are at the heart of this global internet revolution, and this is where we plan to stay.

Is there not some paradox in the fact that you are attempting this is a country where computer literacy is really rather low?

The two are compatible. The development of a new generation is an opportunity to jump into the evolution process at a later stage and go straight to this new faster more effective Internet. I think that the two are very much compatible, and if the Egyptian market is ready to recognize the opportunity, it can very rapidly leverage the power of the Internet more quickly than many of the other developing nations.

Egypt has considerable comparative advantages, and underlying economic fundamentals. How do you view these?

It is a particularly attractive market for us because although the telephony penetration is pretty low, with a population of 60 million the market is huge. The e-commerce revolution could provide some of the very small businesses here with the chance to leap-frog straight into the business directory.

Are you likely to develop a factory here in Egypt?

A factory in Egypt is unlikely. Nortel's stratergy recently has been to outsource more and more of our traditional manufacturing requirements. Our manufacturing process is going through quiet a revolution in itself at the moment. What we do see is the need for very significant research and development arm, particularly for software development, and high technology development activities. This is of great value to Nortel and even greater value in creating high value employment.

I think that everyone we have interviewed believes that the future of Egypt is in the service industries, do you agree with this?

In the IT world, our competitors are slowly waking up to the fact that our value is not in manufacturing, but in the development of high value applications and services. This is the basis of Nortel Networks' repositioning at the moment. We are going to develop application services, and develop or acquire those high value applications providers that we require, in order to integrate them into total solutions for our customers. Egypt is a great place for these developments.

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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
August 7th 2000 Issue.
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