Nearly 30 years ago, the predecessor of Nortel Networks Corp. opened its largest U.S. plant in the Triangle to make digital switching systems for phone networks. The company Web site still gloats that Nortel switches then were a full two years ahead of competitors “who were still struggling in the labs.”
The Canadian telecom giant helped Research Triangle Park grow and develop its reputation as a tech hub. In the mid-1990s, its employment in North Carolina peaked at more than 8,000. “Around 2000, they were running as fast as they could and were as healthy as could be,” says Jeff Kagan, an independent telecom analyst based in Marietta, Ga. ”Then suddenly they slammed into a brick wall.”
Telecom companies took a big hit in the recession of 2001, and much of Nortel’s RTP work force was sent packing. By late 2003, its employment in North Carolina was down to 3,000. Not all of its problems were directly related to the market. In 2006, the company agreed to pay $2.5 billion to settle a shareholder lawsuit over restated earnings. In 2007, it agreed to pay $35 million to settle fraud charges filed by the U.S. Securities and Exchange Commission.
Nortel lost nearly $1 billion in 2007 and $3.6 billion during the first nine months of last year. North Carolina employment is down to 2,000, and the future is murky. Beset by heavy debt and unexpectedly sharp cutbacks in customer spending, the company filed for Chapter 11 reorganization in January.
The main problem, Kagan says, is that Nortel, so proud of its days as a pioneer, fell behind when consumers began spurning traditional hookups for wireless, Internet and cable telephone service. The number of phone access lines statewide has fallen 26% in the past five years. “Nortel focused on delivering services to telephone companies. Cisco and other companies focused on Internet-networked companies. While there are still orders for gear for traditional telephone networks, that’s shrinking.”
Nortel isn’t likely to go out of business, but workers companywide are bracing for spending cuts that could eliminate jobs. At least one local economist isn’t worried about the impact on the Triangle. “Fortunately, we have a much more mature economy, overall and in terms of technology, and we have been able to absorb the downsizing of Nortel since the tech bust,” says Michael Walden, an economist at N.C. State University. “Nortel certainly helped the Triangle grow up, but we’ve now outgrown it.”
With $1.1 million, N.C. Central University hopes to finally lay to rest the controversy caused by its sojourn at a church outside Atlanta (Regional Report, October). In 2004, former Chancellor James Ammons created a campus at New Birth Missionary Baptist Church without permission from state officials or the school’s accrediting body. When the university belatedly sought approval last year, it was denied, and Chancellor Charlie Nelms shut down the campus in Lithonia, Ga. But the university faced the possibility it might have to pay a penalty of about $3 million to the U.S. Department of Education for financial aid given to students who took classes at the unaccredited campus. Because the university’s student-loan default rate is low, the school only has to repay a third of that.