TORONTO - Nortel Networks (TSX:NT) is taking heat from two of its suppliers who say the telecommunications equipment maker, operating under bankruptcy protection, is trying to get court approval for a claims process that doesn't take their needs into consideration.
JDS Uniphase Corp.(TSX:JDU), which is headquartered in California but originated in Ottawa, says the process proposed by Nortel when it sought protection from its creditors last month will take too long and contains no protections for its suppliers.
"The four-month period for the debtors' issuance of the reclamation notice should be shortened and should terminate as of March 15, 2009," the company wrote in a filing last week.
JDS Uniphase, which has at times been the world's biggest supplier of optical technology for communications networks, also addressed concerns that it's being left out in the dark by Nortel.
JDS worries it is "likely to be left in limbo for four months with no benefit in information or analysis as a result."
"Given JDSU's experience to date, this is worrisome -- the debtors (Nortel) have taken the position thus far that they need only provide information that they, not the claimants (suppliers), deem relevant."
Nortel defended its position in an email response from spokesman Mohammed Nakhooda.
"Efforts are taking place across Nortel to establish a sound and fair operating cadence with suppliers," he said. "JDSU is an important partner, and we are in discussions with them on a regular basis."
The JDS filing, made last Thursday, came as Andrew LLC expressed its own concerns that the Nortel bankruptcy proceeding "does not strike a reasonable balance between the rights that Andrew is giving up and the benefits that Andrew would receive."
The two filings could be the first in a long line of objections coming from Nortel's suppliers as the court-supervised restructuring unfolds, said Carmi Levy, a telecom analyst at AR Communications Inc.
"It's almost like the vultures circling the victim waiting for the appropriate moment to dive in and take a chunk out of the carcass," Levy said.
"It shows a lack of confidence that Nortel will be able to come out of the other end of the bankruptcy proceeding intact."
Levy said that Nortel can only provide full services to its clients if its own suppliers are supporting the company. Without them, the company faces complications that could further impact its earnings.
"You're only as strong as your supply chain and the instant that members ... start pulling in the reins, you're in trouble," Levy said.
The suppliers are concerned that products they've already shipped to Nortel could be sitting -- and aging -- unused in a warehouse somewhere.
"The faster Nortel's (bankruptcy) is approved, the faster they'll get their stuff back," said Zeus Kerravala, telecom equipment analyst at Yankee Group.
Outdated technology is a tough sell on the market, and analysts say the suppliers have a limited window of opportunity to recoup their expenses before the product becomes obsolete -- especially given the current global economic slowdown.
JDS also said: "The debtors (Nortel) should be required to share all the information gathered in their investigation with reclamation claimants, on a present-time basis throughout that period."
The documents were filed last week in a United States Bankruptcy Court for the District of Delaware, where Toronto-based sought protection under Chapter 11 of the U.S. bankruptcy code. It has also filed for creditor protection in Canada and elsewhere.
North American markets were closed Monday for holidays. Nortel shares last traded Friday at 10.5 cents on the Toronto Stock Exchange.
