Nortel's purchase of Bay: Milestone or millstone?

Nortel's acquisition of Bay Networks is a landmark deal. It is the biggest merger of telecoms and data networking hardware companies yet. Tellabs buy-out of Ciena and Alcatel Alsthom's purchase of DCS Communications were small fry in comparison.

More significantly, it emphasises how data traffic is now as important as voice to the telecoms players. But there is an as-yet unanswered question: do the cultures of telecoms and IT fit easily together?

One thing is for sure: chief executives at firms like Bay are now saying that they are happy to be swallowed up. Their telco cousins' spending muscle and huge customer bases have immense appeal for them. Only Cisco is standing firm against this wave of mergers and acquisitions. It views the prospect of being bought up with horror and only recently implemented various 'poison pill' protection plans.

Maybe Cisco is right to tread with caution. Bay and Nortel certainly have a stormy period to ride through if history is anything to go by. The acquisition closes the final chapter in the story of Bay Networks - itself a merger between two powerful networking companies, Synoptics and Wellfleet.

The companies joined forces in late 1994 and ever since have had difficulty gelling into a single entity. The result was that it fell further behind the market leaders Cisco and 3Com. But that said, there are key differences between the formation of Bay and the Bay/Nortel hybrid.

Principally, Synoptics and Wellfleet were rivals, and the competitive culture still lingered in the new company. But Bay and Nortel are not in the same position. They come from radically different spheres and there is no existing emnity between the two companies.

But the complementary nature of their technology is not reflected in their internal structures. House and Roth admit that the data and telecoms cultures are different, and Nortel may find it difficult to accept the fast paced, 'younger' culture at Bay. Similarly, Bay personnel may find it difficult to adapt to the 'old boy' network that pervades the telecoms market.

But the very fact that senior management are aware of these issues augors well for a successful blending of the two cultures. Users can expect long-term stability from the new outfit.