Avaya could be described as "a new old company". It can trace its history back to 1869, through Lucent Technologies, Bell Labs and AT&T to the Western Electric Manufacturing Company, founded by Elisha Gray, the telephonic rival to Alexander Graham Bell. Then, last September, it became a new company when it was spun off from Lucent to an independent future.

That history makes it a very difficult company to manage, as Don Peterson, the chief executive, who presided over the flotation, acknowledges. "It adds one more dimension of complexity that our competitors don't have," he says, laconically.

Avaya combines Lucent's business communications, government solutions and enterprise internetworking units. It carries with it from Lucent two strengths, according to Mr Peterson: its customer relationships, with 78 per cent of the Fortune 500 companies; and its technology, which includes converged voice and data networks, customer relationship management software, and call centre applications.

A company that prides itself on its long history, such as Lucent, also prides itself on the longevity of its employees, many of whom have remained with the company for decades. Mr Peterson himself has a long history in the telecoms industry, though mostly at a different company, having joined Northern Telecom in 1976 in a financial position and progressing to become chief financial officer and then president of Nortel Communication Systems. He joined Lucent in 1996 as chief financial officer.

Long-serving employees at Avaya have been through many changes, even for workers at a high-tech company, from the AT&T of the 1970s to its divestiture in 1984 and the transformation into Lucent between 1994 and 1996. The latest move to a new independent entity was a source of great discomfort to many. Mr Peterson acknowledges that his staff may have been unsettled, but is granite in his refusal to countenance people who do not welcome the change.

"People within the company found it hard, despite the fact that we had been through it a few times. If anyone wanted a simpler life, that is not their lot at this time," he says, with typical understatement.

Staff who had been used to big companies became jittery at the thought of launching into the unknown as a smaller company. But then, "Lucent itself was not a safe harbour," Mr Peterson remarks drily, referring to the company's recent travails.

Appropriately for a company in Avaya's business, the key to the process of keeping staff on board was "communication", says Mr Peterson. He established a pattern by which he or one of his close-knit management team would travel to each of the company's offices and explain to staff in small groups what was going on, answer all questions and be as straight-talking as possible. This is the essence of leadership, he believes.

"We made ourselves available at every major corporate location, and we stood there and took questions. It was not a time to minimise people's concerns, or try to create fictions about what was happening, because people see right through that. If people want to know is this plant going to close, and you don't know, the answer is: 'you don't know'. If you make up an answer, they know that. People are not surprised that you don't have all the answers at once," he explains.

There was a danger that good workers would leave, because they had other options to pursue, and they needed to be persuaded - one by one - that the balance of their opportunities lay with Avaya.

But in the end, Mr Peterson's attitude is uncompromising. If people don't like the company, they can leave. "We will give everyone every opportunity to join the parade, but at some point you have to blow the whistle, and we march on [without them]. The thing you can't have is people who won't play the game."

Many did leave: of 34,000 employees to start with, there are now 28,000.

Despite his background in long-established, weighty companies, Mr Peterson shows an entrepreneurial streak in taking on Avaya. "We can be just as successful as Lucent," he declares bullishly. "You have to understand the opportunities."

There was no question that Avaya should have been spun out from Lucent, in his view. The units needed restructuring in order to achieve strong growth, and "Lucent didn't have the appetite for taking the restructuring charge, and so on".

From the Lucent standpoint, he says simply: "There was no synergy. If you accept that the market was looking for demonstrable growth attributes, [Avaya] was unlikely to produce the growth consistent with what Lucent was looking for." Halfway measures such as turning the units into a wholly-owned subsidiary were rejected. Lucent does not even own a stake in Avaya now.

So the challenge for Mr Peterson was doubled: to assemble a new company from several parts of an old one, and to structure it in such a way as to achieve the kind of growth it did not seem to be able to generate under its parent. Not an easy task.

"We have had to change the whole composition of the company and the product offering. That's not going to happen overnight," explains Mr Peterson. These developments were afoot before Avaya formally became separate from Lucent, but then a bad thing happened: the bottom fell out of the market for telecoms equipment.

As telecoms companies realised they may have over-invested in capacity, suppliers hit trouble and the entire sector plunged. Cisco wrote off $2.25bn of inventory and last month Nortel said it would report a record quarterly loss of $19.2bn in the second quarter.

"What couldn't have been anticipated was the change in the market over service provider equipment," Mr Peterson says, in neutral tones. The savage downturn that has afflicted the sector this year must have been a bitter blow to the chief of a fledgling company trying to prove himself, but he is not showing it. "We have been executing [the business plan] according to budget this year, but unfortunately the economy hasn't really co-operated," he notes laconically. That means more cost reductions, and an uncertain future.

Mr Peterson gazes stoically into that future, prepared for further lay-offs and cost trimming. One thing is certain: an economic slowdown does not presage a slowdown in the pace of technical innovation, insists Mr Peterson. "This industry has never shown any signs of slowing down in my 25 years. All the dimensions are in perpetual motion."