Ericsson is buying $70-million for certain assets of Nortel’s GSM business in North America, while Austria-based Kapsch will pay $33-million to acquire most of the remaining assets outside North America.

“Along with our recent acquisition of Nortel’s CDMA and LTE assets, the transaction emphasizes Ericsson’s commitment to the North American market and strengthens our position as a leading provider of telecommunications technology and services in the United States and Canada” said Hans Vestberg, Ericsson’s incoming president and CEO of Ericsson. “Our Ericsson family will be once again enriched by the addition of the valuable Nortel employees.”

Earlier this year, Ericsson bought Nortel’s CDMA wireless business and LTE R&D unit for $1.13-million.

Source: CNN Money

“There are no grounds to believe this transaction could be injurious to Canada’s national security,” Industry Canada Minister Tony Clement said. “[Ericsson] has the resources and customer base necessary to bring Canadian innovation to market…. This deal is very beneficial to Canada.”

Translation: The business and assets that Ericsson purchased aren’t leading-edge and, as a result, there was no way Ottawa could justify blocking the deal.

A more important angle – and one AAN has been hammering away on – is that the stage is now set for Ottawa to step in when Nortel’s LTE patents eventually go on the block. Politically, the Canadian government can claim that the LTE patents are of “national interest” because they will play a crucial role in next-generation wireless networks.

The real possibility that Ottawa could take this stance may scare away potential foreign bidders, which – surprise, surprise – would leave Research in Motion as the logical (Canadian) purchaser.

This is what RIM has been seeking. It didn’t want the CDMA business or the LTE R&D unit; it wants the LTE patents because whoever controls them will have a huge competitive edge. If RIM wants to do LTE R&D, it can hire some of Nortel’s employees, including the 100 talented ones now looking for work.

For more, check out the Globe & Mail.

On September 3, Nortel’s CDMA employees had the opportunity to breathe a little bit easier. This was the day that offer letters from Ericsson were scheduled to appear on employees’ inboxes. It was finally the time to get out of Nortel and its entire sad story. It was an opportunity to get out of the salary freeze, hiring freeze, training freeze among other cost-saving measures. It was also an opportunity to allow Nortel’s technology and innovation to move forward on a company that could make use of it. Indeed it was an overall happy day in all the sad days through the stream of announcements, at least, happy for US, Canada and China employees.

It all started when an email came out from Richard Lowe that mentioned only NA and China. This was puzzling and alarming to all Mexico employees since in all NSN communications the wording was “North America, Mexico and China”. Equally puzzling was the fact that Lowe clarified that two Ericsson/Nortel communication emails had been sent to potentially in-scope employees only, since it was sent to a distribution list created for offer distribution under the NSN deal.

Immediately after this, emails, phone calls and requests for clarification were made. Was it just an oversight that around 130 Mexico employees were not in scope? Was it safe to assume Mexico was included as part of NA since it handles a vast amount of NA operations? Several days later, the worst was confirmed. The entirety of Mexico was not included, essentially leaving out a huge cost-effective and successful project called “Mexico Center of Excellence”.

However, this was not the end of the story, but far from it. The information around this decision was not communicated to Mexico employees until a few hours before the offers went out for distribution. Late on the day, September 2, there was a conference call hosted by Ron Centis (CDMA Leader). After the news was given, moments of shock, awe, anger and frustration were present on the room. A few moments later, questions started to pour in. When asked about the business rationale behind the decision, Centis was quick to state it was his, and his leadership team’s decision, and that Ericsson had nothing to do with the final decision to leave Mexico out.

As expected, morale went down to the floor. And it will continue like that for a long time. High levels of attrition would not be surprising. It is hard to imagine how a cost-effective and successful project with continuous improvement and higher-than-expected metrics were to be left out.

But wait, that is still not the end of the story.

Being left out of the deal, the worst was expected and assumed: massive layoffs. However, this is not the case. As the CoE is a critical part of the CDMA operations (as well as for several other business units), the CoE will be re-incorporated into NBS to continue servicing Ericsson now as an external outsourced supplier. Translation: Mexico employees will stay with Nortel until Ericsson decides to stop buying services or until work has been transitioned over to another location.

Still, Mexico Nortel employees must keep their metrics at expected levels in order to keep Ericsson happy enough to continue the deal. With no incentives other than the quarterly AIP (whose variable factor is decreasing each time), work must be done to the same or better levels.

A sad tale, one of many to come out of the poorly managed Nortel, whose potential to become a key player on the telecoms field was eliminated by the few people who make key decisions. And still, Mexico employees will come out of this incredibly incompetent communication effort and impossibly business-wise incorrect decision (at least with the tidbits of information available to general population) performing the job as they have always been, and supporting the original decision to move work to Mexico and create the CoE.

With a lot more weight on their backs, and with a lot more people moving on, but getting the job done and demonstrating the potential of an organization that started out with a few engineers and turned out to be one of the most profitable and successful projects Nortel has come up with.

At an emergency parliamentary hearing this morning looking into Nortel’s plan to sell its CDMA wireless business LTE R&D business to Ericsson for $1.13-billion, RIM co-CEO Mike Lazaridis said Nortel’s LTE patent portfolio and development work is,”nothing short of a national treasure that Canada must not lose.”

He also provided details on negotiations held between RIM and Nortel, and the fact that RIM thought it had a deal for Nortel’s LTE assets.

As I have argued before, RIM’s master strategy is getting hold of the LTE patents. The last-minute bid for the CDMA and LTE R&D unit, and Lazaridis’ appearance in Ottawa today are all part of a plan to gain Ottawa’s support for a future bid for the LTE patents.

For more details on today’s hearing, check out Unstrung.

Bloomberg reports that a Canadian Parliamentary committee will hold “emergency” hearings on Friday to review the $1.13-billion sale of Nortel’s CDMA wireless business and LTE R&D unit to Ericsson.

Meanwhile, Industry Minister Tony Clement is still pondering whether or not to review the sale.

Folks, this is just political posturing. The sale to Ericsson isn’t going to be stopped because the CDMA business isn’t worth the hassle. Ericsson has more than 2,000 employees in Canada so it can easily sell the politicos on how it’s a good corporate citizen who will continue to employ people and invest in R&D in Canada. End of story.

If the federal government really wanted to protect Nortel, it would have provided financial support months ago.

And if the government really wants to get involve, it might be better off focusing its effort on Nortel’s LTE patents, which are world-class as opposed to the slowly-declining CDMA business.

One more thing: if the U.S. government had no problem seeing Lucent sold to France’s Alcatel, what’s the fuss about foreign buyers going after Nortel?

The Wall St. Journal reports that Nortel lawyer Derrick Tay said Nortel will “license the appropriate LTE patents to Ericsson as part of the planned deal”.

The patents are what interests Research in Motion, which made a last-minute bid to participate in last week’s auction for the CDMA business and LTE R&D unit.

While RIM apparently wanted to bid for assets it didn’t really want, it was likely a strategic smokescreen that is working to perfection.

What RIM did was wave the Canadian flag and put the spotlight on how Canadians need to own world-class technologies rather than letting a foreign company own them.

The politicians, who had been happily ignoring Nortel, bit hard on RIM’s efforts. RIM now looks like the local hero, protecting Canada’s innovation and R&D assets.

It’s just a guess but when Nortel does eventually decide to sell the LTE patents, RIM’s going to bid aggressively, and lobby the federal government to support its efforts. This will put the pressure on Nortel to make a deal with RIM; RIM will pay a premium to make creditors happy, this will make the federal government happy, and Canada (aka RIM) will keep ownership of world-class technology.

Update: The Globe & Mail is reporting that the Ontario government could have a liability as much as $500-million related to Nortel’s pension fund.

It is with disappointment that I respond to this blog as I was quite hopeful that NSN would prevail in the auction. In the end we did not but I thought some closure to the CDMA team and myself might be helpful.

It was personally and professionally great to get to work with all of you again. My colleagues were really impressed with each of you and your passion for your customers and R&D designs. That was no surprise to me from my days of working with you in the past.

I do not of course consider this the ‘end’ for any of us. For most of you it will mean a new company and new horizons. For NSN we will continue to push forward into the North American market. We have, in the last year , had the good fortune of winning the wireless networks for 3G overlay build at Telus and Bell Canada and we are in the process of building new 3G networks for Videotron and Globalive, IMS at Time Warner and Verizon to name a few.

I do not mention these to sound overly confident but simply to say that we started out in NAM knowing it was a competitive marketplace that many vendors covet and no surprise CDMA and LTE are no different. It means that we will now move forward in a different way but we will not give up, nor would any of you, nor would the marketplace expect us to do so.

The entire team at NSN enjoyed meeting many of you and will look back on the last few months and know that we met some very great people and hope you felt the same of us.

Thank you and best of luck to each of you.

Sue Spradley

RIM believes it can still get a food in the MA& door in wake of the Canadian government’s suggestions it could intervene in the auction:

“The government has the authority and responsibility to get involved to protect vital Canadian interests,” RIM said in a statement.

With no insight into RIM’s strategic motives, it strikes me that RIM is blowing strategic smoke.

It’s hard to believe RIM wanted the CDMA business, although it is a profitable cash-cow.

RIM is far more interested in Nortel’s LTE technology and patents; the question is where that technology exists – some of it appears to be part of the Ericsson deal but from an e-mail sent by enterprise president, Joel Hackney, the deal did not include 4G technology, which is likely want RIM wants.

So why the political games, the flag-waving and last minute bid by RIM? Jim Balsillie, RIM’s co-CEO, is a smart cookie so something’s going on.

Update: Reuters has a story suggesting that RIM is talking with Nortel about buying the LTE patents that are not part of the Ericsson deal.

Team Nortel:

As you have seen in the media, the process to find buyers for our businesses is garnering a great deal of interest and communications from many parties. It is not unusual for prospective bidders to leverage public means to generate support for their bids. Moments ago, we issued a press release in response to some of those communications.

We have said all along that Nortel’s businesses have considerable value, and there is no better indication of this than the attention the recent CDMA and LTE Access asset stalking horse process is receiving from potential bidders. Although we must be very mindful of the rules around discussing certain aspects of specific bids, I want to take a moment to put some of the commentary you are reading in the media into perspective.

Most importantly, let me reiterate that the bidding process as prescribed by the Courts is conducted in a very orderly and controlled manner. This process is designed to bring about the best possible bids in a way that is ethically sound and as transparent as possible. These laws and procedures exist to protect the many stakeholders involved in the filing process, and we are following them to the letter.

That said, I’d like to comment on two communications that have been getting a considerable amount of play in the media. First, RIM issued a press release on Monday of this week stating they have been prevented from entering the CDMA and LTE Access asset auction process. We had hoped that RIM — and any interested other parties for that matter — would participate in the auction process, as an active auction will result in achieving the maximum value for Nortel’s assets.

Any parties bidding on these assets must follow the court-approved bidding procedures. The rules are in place to ensure a fair process, and also to protect Nortel’s considerable intellectual property. Unfortunately, RIM was not willing to comply with the procedures.

Second, a press release was issued yesterday containing an open letter from MatlinPatterson to Nortel employees around their intention to bid on some of Nortel’s CDMA and LTE Access assets. Again, the bidding process exists to ensure the best possible outcome in the sale of assets of a company under bankruptcy protection. We cannot comment on any specific bids from any parties given we are in the auction process.

So what should you – as Nortel employees – make of all of this external interest in our company? Let me repeat, most importantly it demonstrates the considerable value various parties see in our assets, including Nortel employees. I also believe it underscores the importance of having a court-approved and monitored process around the sale of our assets – to ensure we move to maximize the value of our businesses, operating within a process that is ethical and fair and protects the interest of Nortel stakeholders.

I expect the excitement around the CDMA and LTE Access asset bidding process to potentially escalate as we approach the auction this Friday, July 24. This is exactly what the process is intended to do. I am not surprised at all by how robust the auction is turning out to be. A highly competitive auction will help us achieve our objective of maximizing the value of our business through a sale and preserving technology and employment to the greatest extent possible.

Most importantly, we must continue to focus on operating our businesses and serving our customers as we go through this process. We must continue to work hard and focus on the work at hand. That is the only way forward. Thank you again for the strong efforts and results on these fronts since we filed.

As always, thank you for all you are doing for Nortel and our customers.

Mike

According to Genuity Capital Markets analyst Deepak Chopra, RIM could be interested in Nortel’s IP:

“The bid for Nortel’s CDMA and LTE access business is puzzling, as this is outside of RIM’s core area of expertise and the networking business is hyper competitive with a lower margin structure,” he said in a research note. “Most companies in the networking space are not making any money. The primary reason for the bid, we believe, is Nortel’s intellectual property, as it has key patents in LTE and CDMA. In a press announcement a year ago, Nortel indicated that it was willing to sign licences for its patents that are equivalent to 1% of LTE revenues. If Nortel’s IP can generate that level of royalty from LTE, the patents could produce hundreds of millions in revenue per year. For example, if 100 million LTE handsets are sold by 2013 with an average ASP of $150, the potential royalty revenues would be $150 million.”

Chopra also suggests that with a stronger IP portfolio, RIM would have more negotiating power with other wireless suppliers:

“As we have mentioned before, RIM is buying patents to build its portfolio and strengthen its negotiating position with other wireless vendors to reduce its effective royalty rate. Essentially, RIM is using its balance sheet to substitute its relatively short history to build its patent portfolio. RIM has spent $1.3 billion on patents over the past two years (also includes Certicom acquisition), and another $270 million to settle with Visto. If the IP is the primary target, we could see RIM sell the network business. As of December 31, 2007, Nortel had approximately 3,650 U.S. patents and approximately 1,650 patents in other countries. It has been reported by industry analyst IFI Plenum that, in 2006, Nortel ranked 69th in terms of number of patents granted by the U.S. Patent & Trademark Office.”