The Impact of Ericsson’s Nortel Victory on Nokia Siemens

Ericsson’s victory in the auction for Nortel’s most profitable assets, the company’s CDMA and LTE Access units, is a major setback for Nokia Siemens, a joint venture of Nokia of Finland, a company founded in 1865, and Germany’s Siemens, founded in 1847.

Although Nokia Siemens is the world’s second largest wireless networking company, it has had little success in the North American markets and was counting on the Nortel acquisition to change that.  Both Verizon Wireless and Sprint, two of the largest mobile operators in the U.S., run their networks on CDMA technology and Nortel is one of their primary sources of networking gear. CDMA is also used in Japan and Korea.  It competes with GSM, the global system for mobile communications used in the rest of the world, including a good part of the U.S.

The Nokia Siemens joint venture was formed in 2007, as a part of Siemens’ divesture of its various telecommunications units.  Siemens placed its carrier business into the 50-50 joint venture; Nokia contributed its Networks Business Group. The joint venture’s portfolio includes IMS, 2G GSM/EDGE access, 3G WCDMA/HSDPA access, extensive mobile core, fixed broadband, transport, IPTV, LTE, WiMax, and low-cost mobile voice products tailored for emerging market operators but it has no presence in the CDMA market, which was dominated by Nortel.

In addition, Finland-based Nokia has long sought to establish a more significant presence in North America, with limited results.  Relatively few of its mobile phones are sold in retail establishments although AT&T, T-Mobile, and Verizon Wireless do list an assortment of Nokia mobiles on their respective Web sites.  Siemens sold its mobile phone business in late 2005 to Taiwan’s computing devices maker BenQ.  That business was declared insolvent a year after the takeover, with the loss of 3,000 jobs. BenQ now operates under the name Qisda.

By acquiring Nortel’s contracts and relationships, Nokia Siemens had hoped to place itself in a better position to win future contracts with U.S.-based mobile operators.  Indeed, the Nortel wireless division would have been a cash cow for Nokia Siemens despite the fact that CDMA technology will, in the coming decade, be phased out.

Instead, Sweden-based Ericsson, having won the auction for Nortel’s wireless assets that concluded late yesterday, will benefit.   Ericsson will also benefit from the acquisition of certain Nortel technology related to Long Term Evolution, or LTE, the evolving global standard for 4G wireless networks.

LTE will be a critical technology for wireless network suppliers.  Most global mobile operators, including AT&T and Verizon Wireless in the U.S., have announced plans to adopt it.  Verizon has already chosen Alcatel-Lucent and Ericsson as its two main LTE suppliers (a trend that has been repeated in other markets, it should be noted); Nokia Siemens was awarded a minor role.  With Nokia Siemens loss in the battle for Nortel assets, it will need to work much harder to expand its offering to meet the end-to-end needs of the world’s major telecoms.

Nokia Siemens termed its bid for the Nortel assets as “opportunistic,” and aimed at supporting the company’s progress in North America over the past 18 months.  “Our final offer for Nortel’s assets repesented a fair price, and we did not enter this process with a win-at-any-cost mindset,” said Bosco Novak, chief markets operations officer, Nokia Siemens Networks.  Upon losing the bid for Nortel, Nokia Siemens put out a statement that the company “remains committed to long term wireless Leadership” and to growing its business in North America.”

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

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