Thesis: Nokia to Buy Nortel’s Wireless Business

By Mark Evans | Published: February 27, 2009

Nortel
As Nortel restructures and figures out what the New Nortel will be, there are all kinds of theories being thrown around. Here’s one for discussion – you know, one with constructive and insightful thoughts.

It involves the theory that Verizon wants Nokia Siemens Networks to acquire Nortel’s wireless business. There are two interesting things at play that make this scenario plausible:

1. When Verizon unveiled its LTE partners in Barcelona recently, Nokia Siemens was not selected as its radio vendor. Nortel wasn’t selected either even though its technology was top-rated during Verizon’s LTE technical trials.

2. Richard Lowe, who heads up Nortel’s carrier networks business, has apparently met with Nokia Siemens in Dallas and in Finland recently.

With Nokia being left out of the Verizon contract, Nokia could purchase Nortel’s wireless assets to get knowledge about Verizon’s network.

One more point: Verizon has three major vendors for CDMA – Lucent, Nortel and Motorola – so why would they select only two for LTE – Ericsson and Alcatel Lucent? It’s possible Verizon may pick a third vendor, and you can be sure that Nokia wants that slot.

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  • Cataractus

    Interesting speculation. I'm sure Nortel's questionable future was the main reason Nortel didn't make the cut for Verizon's LTE rollout. If Nortel's LTE portfolio was taken over by a more solid company, I could see it getting much better traction in the market.

  • TongueInCheek

    It wouldn't surprise me in the least to see either NSN or Ericsson make a play for the Nortel Wireless business. There are some strategic components for either in this type of play.

    Ericsson, nor NSN has a CDMA offering. Nortel holds around 260 Million Ports of CDMA globally, many of which are evolving to 3G CDMA, known as EVDO Rev. A. EVDO Rev A has similar performance characteristics as HSPA.

    We all understand that LTE is the next iteration of Wireless and that both GSM/UMTS/HSPA and CDMA Networks will evolve to LTE. We know that Nortel holds very good install base in CDMA and owns Intellectual Property to migrate from CDMA to LTE.

    NSN or Ericsson can acquire 260 Million new ports that will in time evolve to LTE. That is about 3 times the total size of the entire Verizon network. It would be a market share capture to give them first mover leadership for the LTE migration.

  • joremero

    The main reason Verizon didn't give NT an LTE contract was the situation of the company. If NSN had NT's LTE solution (and NT's CDMA as well), I see it quite possible that Verizon would happily give a contract….

    Another rumor is that Verizon wanted Ericsson to buy NT's wireless, thus having two CDMA-LTE vendors

  • protosphere

    Perhaps they are saying anyone except for Nortel at this point just as BT and so many others did. Perhaps they need a name that will be around. Verizon is still Nortel's largest customer but Nortel is no longer Verizon's largest supplier.

    Nortel holds Vorizon hostage with a large installation base so of course it would be prudent to tell Noika to buy it and transition this out as so many others are doing with the soon to be gone Nortel brand, this time with their lrgest customer's support.

    Heck Noika even beat out Nortel with the long boasted Putian partnership in China. LG's JV showed no substantial returns there with so much cash locked up offshore today, Noika also got a slice of BT with everyone else except NT initially and is eating their pie with everyone else before folding let alone now. Makes sense…

    Verizon should sweeten the deal for Noika to do just that now that Nortanic can be had at a more reasonable value to what they can salvage from them to service existing installation bases like theirs.

    I do not think the upcoming fraud trials putting the Nortel name in the news again will do their branding any favors either. The sooner Nortel moves as the business tanks, the better, is right.

  • less

    Just so long as NSN promises to follow Nortel's forward-faced lead and moves jobs offshore this will display pro-active solid footing, uh, looking forward.

  • horace_grimswold

    I'm pretty sure the NSN-NT theory has connections back to JFK, Lee Harvey Oswald, Jack Ruby and the CIA in some convoluted fashion or another.

    Who would buy this turd?

  • exnt2

    NSN from Nokia Siemens Networks to Nokia Siemens Nortel could be cool. That would mean certain death for the Nortel-LG partnership.

    Actually why would LG not be a good fit to vertically integrate Nortel's wireless business? They would be a pretty good Korean player and top 3 right away.

  • joremero

    you need to give a rational explanation other than saying “who would buy this turd?”

  • joremero

    I agree, integrating NT into LG wouldn't be a bad idea

  • watching…

    Here I thought NSN meant Newer Smaller Nortel.

    Then again…Nokia Siemens Nortel (Wireless) would complement New Smaller Nortel (remainder).

  • exnt2

    the only scary thing is from what we see in the financials. acquiring bad companies took down some of the biggest banks. the acquirer could become the acquired. see whats happening to Alcatel-Lucent. Total mess of a company. They are next.

    Mark, how about an all about alcatel blog.

  • joremero

    “acquiring bad companies took down some of the biggest bank”
    that's a very different story.
    Banks bought other banks with very bad assets (so called toxic assets).

  • Ex_Nortel

    Back in 2005, Gary Kunis signed an MOU with Nokia execs after a series of negotiation meetings about selling off Nortel's UMTS & GSM RAN products into a joint Nokia – Nortel JV for approx $2B, Nortel would also have provided Nokia with CDMA, voice signaling, and gateway products on a preferential basis. The BoD and Bill Owens preferred to remain a full service stand alone player in the UMTS / GSM market even though Nortel was the number 6 vendor in the GSM market with 4% market share and was losing hundreds of millions of dollars.

    It will be interesting to see how easy it will be for Nortel to sell of its money losing GSM business with its burdensome expensive and labor law protected French headcount. It will be a lot easier to sell off the CDMA business but the numbers will be very low. So Nortel is looking at selling off a declining but profitable business for a pittance while holding onto the cancerous GSM business until it can get through the EU / French regulatory environment and put it out of its misery.

  • rfc1149

    Something like this (I was thinking Ericsson ) is (in my opinion) Nortel's only hope. If they leave Bankruptcy still pretending to be a tier one wireless provider, they are doomed. CDMA will evaporate forcing they to lay off 1/2 their staff smd they will not have the money to do so:(

    Nortel cannot become a tier one LTE provider. Ericsson & ALu will outspend Nortel 4-1 (but Nortel will spend twice as much on OAM:( ) and will leverage their much large GSM/UMTS installed bases.

    Nortel's other option would be to focus on part of the solution (e.g. in a Gary style JV) where they definitely could add value and this easily could be the size of the current CDMA business. But 'focus' does not appear to be Nortel's forte :( and is anyone really interested in partnering with Nortel now? (Let's hope).

  • Anon7

    Interesting speculation, but unlikely for the following reasons:

    1. Nokia’s infrastructure business is already a JV between Nokia and Siemens (NSN). Adding a 3rd player to the mix can be a hellish experience as learned by ALU when they rationalized their wireless portfolio between Alcatel, Lucent and Nortel gear, although Nortel’s RNC did come on top in the process.

    2. There’s no economic benefit in taking over Nortel’s now-declining CDMA business. ALU, Ericsson and NSN all now have entré into Verizon’s LTE business as either end-to-end or IMS vendors. What happened to NT’s IMS solution???

    3. There is no so-called intellectual property required to evolve from CDMA to LTE as they are completely separate architectures and technologies that operate in different frequency bands.

    4. NT’s LTE group would come with its horrifically bad management team that took the business from a world contender to a rapidly fading wannabe.

    5. Although NT’s UMTS RNC was, when sold to Alcatel, already a solid product being delivered to market, its LTE product, tho probably great, is just a demo system with all the heavy lifting of building a commercial product yet to be done.

    6.Although Verizon is being bold in its statements about commercial LTE service in 2010, the major players in Europe, include Vodafone – a major investor in Verizon Wireless, are indicating LTE may not see the commercial light-of-day until 2012. It may not be worth NSN’s – or any other infrastructure vendor’s – time and effort ($$$) to integrate a new group into the company. Remember, NSN has a more successful GSM/UMTS business than Nortel (as in minor in GSM and non-existence in UMTS).

    7. NSN is an IMS supplier that will help give it leverage, if they execute well, in the second round of bidding for infrastructure. NSN is developing its own LTE access gear now.

    8. Although Verizon had 3 CDMA suppliers, Motorola was fading and there were essential only 2: Lucent (ALU) and Nortel. So, Verizon picking only Ericsson and ALU align well with the current reality.

  • rfc1149

    I meant also to add that there is value to say Ericsson or NSN (ALu probably runs into trust issues:( ).
    1) They get the (evaporating) profits
    2) a bunch of good engineers to focus on the CDMA->LTE evolution where ALu will be inherently much stronger.

  • joremero

    “3. There is no so-called intellectual property required to evolve from CDMA to LTE as they are completely separate architectures and technologies that operate in different frequency bands.”
    I'll be brief. You don't have much idea how Verizon plans to deploy their network. They obviously plan to integrate their current network with the new network. IT won't be a completely separate architecture.

  • Anon7

    Will LTE be connected through the core network so that a call go from an LTE mobile to a CDMA mobile or to anywhere else? Of course it will be! Yes, fiber backhaul, IP routing, buildings, power supplies and the like can be reused, but LTE is just not a new radio bolted onto their existing network … it is a new network that will be integrated with their existing network. To restate, there is no so-called intellectual property that puts NT in a unique value-add position. Eventually, they will migrate all users off of CDMA onto LTE. It will take many years, but that is the game plan.

    Now, are there some NT baffle gab PowerPoint charts that say they can get synergies? I'm sure the is, but the concept of 'graceful evolution' is a tried-and-true marketing trick used by ALL vendors.

  • horace_grimswold

    Nortel's CDMA business can be likened will all things yesteryear. Leg warmers, street trolleys, The Jeffersons, record players, Miami Sound Machine, and the Edsel.

    Would NSN buy artifacts of history in hopes of making their next $100 billion?

    No!

    Alas, it's a turd. Enough said.

  • horace_grimswold
  • rfc1149

    Not that I expect this to happen but…

    The reason any business should buy anything is simple: to make money. Being 'modern' is irrelevant. If I owned 'The Jefferson' I could make a pretty penny, so for the right price I would.

    So the questiona NSN should be asking itself are
    - 'What is Nortel's (currently) profitable business worth?' I.e. what is the current value of the expected cash flow minus whatever liabilities (such as ultimately shutting it down). Think of it as a sort of annuity. X dollars/year of N years has a calculable current value.
    - Are there any 'strategic' or synergistic advantages (do the NSN & Nortel CDMA parts sum up to a greater whole? Are there market channel advantages (e.g Verizon Wireless) etc)
    - Are there other advantages? E.g. a bunch of good engineers to facilitate CDMA->LTE evolution
    - What is the opportunity cost e.g. management distraction. This one tends to be underestimated (e.g. watch any big merger)
    - etc

  • jygafort

    I'm French, and even if I'm not upset by your words, I would like to add clarifications. I'm not so sure that French headcount is so expensive compared with other US, Canada or UK labor fees. On salary expenses and law : France may obviously cost in Nortel spends because it includes all the social contributions (health, unemployment, pensions…), but is not responsible for cash burning $100M/month through its pension mechanisms. Also the French labor law protection is real for employees, but it will not avoiding the lay off, it just defere the cuts for 3 months.

    Now on GSM business, it is still profitable even if declining. R&D investments are now on V18 features on demand, no more on new releases. Most of the sustaining efforts on deployed releases are done in Asia (low cost). Even if Nortel will continue to loose footprint on GSM in EMEA due to UMTS expension, Asia natural growth keeps th ebooat floating. The revenues from SW licences and Support contracts would maintain enough margin to be seen as non-loosing business during the 5 coming years.
    The concern we may have with the NSN interest is on GSM-R (Railway application) : there are only 2 competitors : Nortel and Siemens. With such acquisition from NSN, EU regulatory would request a sell this specific GSM-R business to avoid dominant position (only 1 GSM-R provider remaining), which is a non sense.

  • betoX

    I wondering how much GSM-R Nortel equipment (in $$) has been sold in the last few years, as the big contracts in Europe (Germany, France, UK, etc.) are already Nortel networks. If NSN buys the wireless arm of Nortel, for example Thales could buy Nortel's GSM-R, as I believe most of the business in Europe is only services or subcontracting more than equipment.

  • jygafort

    You are right ! Thales example is the worth hypothesis. Nortel is now mainly co-biding in consortiums as equipment provider, and Thales is one of the most valuable partner in many cases. But does Thales want to leave its position as “Consortium Leader” (also ensuring Integration and providing services), by adding the “Product” in its offers? not sure today.

  • horace_grimswold

    In short, from a purchase, NSN could be buying (1) Nortel's market share, (2) Nortel's technology, or (3) Nortel's talent pool, or any combination thereof.

    Business acquisitions are generally valued at a multiple of revenue. CDMA has been in decline for quite some time. But you raised a good point — if a $7.8b Alteon acquisiton can be bought for $17.65m, perhaps CDMA can be picked up for even less?

    If NSN were crazy enough to buy Nortel in the hopes that they'll get preferential access to Verizon (which Ericsson's CDMA portfolio shows as unnecessary), they'd likely end up firing everybody except the legacy development group. Alcatel-Lucent demonstrated that having 3 UMTS portfolios (Alcatel's, Lucent's, and Nortel's) does not translate into 3 times the sales results, and creates an integration nightmare.

  • slk

    There is some validity to this theory, because Verizon has a large installed base of Nortel CDMA equipment that I'm sure they are worried will fall to dust without Nortel around to help support, maintain, and upgrade it. So from their perspective, if some OTHER sucker (surely not them, they aren't dumb), bought the Nortantic and provided this support until they could switch over to LTE, life would be grand.

    If this buyout had happened a year ago, it would have made sense. Now, I wonder how many CDMA folks are still left at Nortel? Nokia has to realize it would be buying damaged goods, but they could also get it at a firesale price so who knows….

  • CommonCents

    In regards to NT “only” having a legacy CDMA product, that is not the case. NSN could greatly benefit from our LTE developments.

    Remember, when ALU bought UMTS access, they canned their product and changed the label on ours.

  • betoX

    Thales will not be risking anything adding the equipment to their offers that has in most of the cases 70%+ (GM) margins… the risk has been Nortel offering 'integrated' bids in areas that doesn't control pricing or have real market share…

  • TongueInCheek

    It's pretty rude to call the people dedicating their career to the success of Nortel CDMA as “damaged goods”.

  • MianFei

    Nokia is burning money quickly in the UMTS market to keep it's market share, they offer almost free equipmentcomparing to E/// or Huawei. They don't have the money to buy Nortel's CDMA business, even if it's “free”.

    Now, nobody can save Notel's wireless, E/// is the only possibility to save Nortels CDMA. Verizon will kept pushing E/// to do so.

  • 4GPro

    Nortel has limited liquidation value for the same reasons that it has been unable, after repeated restructurings to turn the business around: operating an infrastructure company is difficult in North America because of economic priority distortions. This is a mega-trend that Nortel was unable to deal with.. even after years of being drummed over their heads with what should have become the obvious.

    Among the crown jewels, Nortel holds essentail and fundamental patents in MIMO-OFDM which are important to all next generation wireless systems including WiMAX and LTE. This is a leveragable asset for Nokia. They might also cash-cow Ethernet and VoIP.

    Otherwise, Nortel is going to be dismantled for scrap value. Everyone should have known this was coming.. its been inevitable for years,

  • yes4aapl

    Nokia is burning money quickly in the UMTS market to keep it's market share, they offer almost free equipments comparing to E/// or Huawei. They don't have the money to buy Nortel's CDMA business, even if it's “free”.

    Now, nobody can save Notel's wireless, E/// is the only possibility to save Nortels CDMA. Verizon will keep pushing E/// to do so.
    ====
    re
    You were right on that one.

  • yes4aapl

    Nokia is burning money quickly in the UMTS market to keep it's market share, they offer almost free equipments comparing to E/// or Huawei. They don't have the money to buy Nortel's CDMA business, even if it's “free”.

    Now, nobody can save Notel's wireless, E/// is the only possibility to save Nortels CDMA. Verizon will keep pushing E/// to do so.
    ====
    re
    You were right on that one.

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