The convergence of the communications and IT industries took a significant step forward recently as Microsoft Corp. and Nortel announced a strategic alliance - called the Innovative Communications Alliance* - based on a shared vision for Unified Communications. By engaging the companies at the technology, marketing and business levels, the alliance will allow both companies to drive new growth opportunities and has the potential to ultimately transform business communications, reducing costs and complexity and improving productivity for customers.

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By combining Nortel's world-class network quality and reliability with Microsoft® software's ease of use, the alliance will accelerate the availability of Unified Communications - an industry concept that uses advanced technologies to break down today's device- and network-centric silos of communication (such as e-mail, instant messaging, telephony and multimedia conferencing) and makes it easy and efficient for workers to reach colleagues, partners and customers with the devices and applications they use most.

In the following interview, Nortel's President and CEO Mike Zafirovski, discusses the significance of the alliance to the evolution of business communications around the world.

Q. How does the new strategic alliance with Microsoft fit Nortel's vision for itself and the evolution of today's communications?

Zafirovski: Nortel's vision for its future and the evolution of communications are one in the same. As businesses around the world drive demand for new communication services that reduce costs and increase productivity, Nortel is there, providing technological innovation designed to meet their specific needs. It's where we've always been throughout our 111-year history and where we intend to stay.

All types of communications today - email, instant messaging, telephony, video and multimedia conferencing - are rapidly evolving to anywhere, anytime access on any device and these new capabilities are predominantly software driven. Our strategic alliance with Microsoft accelerates the move of Nortel's voice technology into software and working with the world's software leader is part of our broader business strategy to transform the Company into a software and services leader.

Microsoft and Nortel's alliance in technology, marketing and business engagement is focused on combining the unique strengths of our two companies to accelerate this convergence of IT and networking. This is where Microsoft and Nortel can make a real difference in the future evolution of communications. Business decision-makers around the world are looking for ways to radically improve communications and simplify their business processes and not just add yet another new communications device.

Through our new alliance, Nortel and Microsoft will transition traditional business phone systems into software with a Microsoft Unified Communications software platform and Nortel software products to provide further advanced telephony functionality. This software-centric approach will provide the easiest transition path for businesses, helping enable them to reduce the total cost of ownership and better protect current and future investments. It will also more quickly enable the creation of new, innovative applications.

As for our own vision of our future, Nortel sees this alliance as a key step and proof point in our Business Transformation plan. Our Enterprise business is key to this transformation. We have said we will change our Enterprise trajectory. This alliance is a dramatic example of how we remain committed to the Enterprise market-and remain determined to lead it and profit from it.

We have said that Nortel will increasingly produce value as a software and a services company. Our new relationship with Microsoft represents an opportunity for us to capture over $1B in net new revenue over the next three years in a range of professional services, voice products, and data pull through in the enterprise. The tight integration and joint go-to-market strategy at the core of this alliance will give us new opportunities and greatly expand demand for our integration services. And finally, the alliance is a perfect proof point for our plan to organically leverage our own R&D and sales teams with strategic partnerships to re-create a great company.

Q. Why is this the right time for a Microsoft and Nortel alliance?

The timing of the Microsoft and Nortel alliance is opportune because the world is now undergoing one of the most powerful transformations in the history of communications. Powerful because it is making an unprecedented wealth of information available anywhere, anytime on any device. And transformative because its implications for all aspects of our daily lives - business, education, healthcare, entertainment - are immense.

At the core of this transformation in communications, and at the heart of Nortel's alliance with Microsoft, is a vision of for Unified Communications. Unified Communications is changing the way we communicate, operate and service business communications in the Enterprise. Regardless of the size of a business, the ability to bring together telephony with business and desktop applications enhances communications. People connect more quickly. They collaborate better because location and distance barriers are removed. They gain control over their communications through the freedom to choose how, where, and when they can be reached helping improve productivity through simplified sharing of information.

Q. How is the Microsoft and Nortel Innovative Communications Alliance unique?

Zafirovski: The synergy of Microsoft and Nortel is unique because it brings together the strengths of transformative technologies each of us led in our own markets for decades - Nortel's digital innovation and Microsoft's software on every desktop. This alliance is about accelerating the business-driven transformation of voice, video, and data communications and the desktop into Advanced Unified Communications, while ensuring the highest quality of experience.

Microsoft clearly owns the desktop and Nortel has a long history of innovation in communications. Nortel is also a seasoned leader in the Unified Communications world. We've had a mature Unified Communications product in the market since 2003 and its now on its fourth release. Gartner rates us a Magic Quadrant Unified Communications leader.

Nortel is also a global leader in business-grade telephony. We are-# 1 in IP PBX deployments and # 1 in VoIP with over 300 VoIP networks in place today. We are the only provider of converged solutions to have delivered over 50 million data ports and 50 million telephony lines

Reliability is in Nortel's DNA. Some of the most mission critical networks in the world depend on us. Look at the world's stock exchanges, banks, and airports and you'll find Nortel systems. Our business has always depended on building security into our products at the network level, managed at the network level.

Nortel has thrived on innovation. In the communications world, we were key to the move from analog to digital, from wired to wireless, to fiber optics and now to next-generation mobility and services. We have thrived because our customers know we will provide an evolutionary path to protect their investments as technology moves forward. And increasingly, we've become a center of excellence when our customers are looking for services integration, whether it's helping them to design their network or to manage the whole operation for them. Our services team has years of experience deploying Unified Communications solutions and we will use that to take the risk out of the transition to Advanced UC solutions.

Nortel and Microsoft share the same vision for the potential of Unified Communications. We have been working toward this vision, both separately and together, in earlier joint efforts such as integrating Nortel's open SIP-based solution with Microsoft Office Communicator 2005 and Office Live Communication Server. With the announcement of our new alliance, the time has come to push forward aggressively on delivering the promise of Unified Communications and turbo-charge its benefits to business.