» Archive for the 'Telecommunications' Category

Winners and Losers in the T-Mobile-AT&T Deal

Thursday, March 24th, 2011 by Jonathan Spira

History tells us that mergers take years to plan, years to execute, and years to resolve post-merger problems.

Who's next?

As a result, the big winner in AT&T’s merger with T-Mobile USA is likely to be AT&T’s largest competitor, Verizon Wireless.  Indeed, Verizon is starting to sound like a cheerleader for it to take place.  “We’ve been through a series of great acquisitions and great integration into our company,” said Dan Mead, the company’s CEO.  He added that he does not concur with those who say that the deal is bad for consumers.

Although AT&T is projecting that the deal will close within 12 months, given the likelihood of resistance from competitors, government regulators, and consumer groups, it could take far longer.  Once the deal closes, AT&T will have to integrate T-Mobile’s customers into the fold, which includes replacing incompatible 3G devices with ones that will work on the AT&T network.  Integration can take years.  Just ask Alcatel and Lucent, which lost billions in the years following their merger, or US Airways, whose integration took three years.

Verizon Wireless, however, will be content to sit on the sidelines.  Indeed, the longer it takes the better for Verizon.

Opposition didn’t take long to appear: competitor Sprint, which will be a distant third in the post-merger marketplace, was leading the charge against the deal within a day of the announcement.  Speaking at an industry event this past Tuesday, Dan Hesse, the company’s CEO, said to great applause that he has “concerns that it would stifle innovation and put too much power in the hands of two.”

Groups such as Consumers Union, Free Press, the Media Access Project, and Public Knowledge have come out against the deal on the grounds that it is anti-competitive and will most likely hurt consumers.  These groups wield some influence with Democratic members of the FCC and as well as on Capitol Hill.

The list of opponents seems to go on forever.  The Computer and Communications Industry Association (CCIA), an industry group that counts Google, Microsoft, and Yahoo as members, has already stated its opposition.  “A deal like this, if not blocked on antitrust grounds, is of deep concern to all the innovative businesses that build everything from apps to handsets.  It would be hypocritical for our nation to talk about unleashing innovation on one hand and then stand by as threats to innovation like this are proposed,” said Ed Black, the group’s president.

T-Mobile customers are also unlikely to be looking forward to the merger.  Basex has been a corporate customer of T-Mobile for 13 years, in part due to the excellent customer service that the company has always provided.  From personal experience, I can attest to the fact that every call I have ever had to make for technical support was handled as if I were the only customer the company had to deal with.  Service was personalized, the reps have always been friendly and knowledgeable, and they seemed genuinely concerned about whatever problem I was reporting.  They also had an excellent track record of resolving these problems.

The future of this deal is far from certain.  AT&T, by virtue of a $3 billion breakup fee due to T-Mobile USA parent Deutsche Telekom if the deal doesn’t close, is betting it can win approval.  This is one bet I wouldn’t necessarily make.

This Analyst Opinion is also available online at

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

A Qwest to Merge

Thursday, April 22nd, 2010 by Jonathan Spira

In what is one of the biggest telecommunications deals seen in years, CenturyTel and Qwest Communications International have agreed to merge in an all-stock deal that values Qwest at ca. $10.6 billion.  The deal links two relatively new telecommunications giants with extensive roots in the pre-Divestiture Bell System.

On a Qwest

Qwest, founded in 1996 as a fiber-optic-based networking company, acquired Baby Bell US West in a hostile corporate takeover in June, 2000.  The company provides local service in 14 western states including Arizona, Colorado, Minnesota, Nebraska, Oregon, Utah, and Washington.  CenturyTel (née Century Telephone Enterprises) is the country’s eight largest local exchange carrier and provides services in rural areas of 26 states including Alabama, Arkansas, Idaho, Kansas, Tennessee, and Washington as well as a fiber optic transport system that connects 16 states in the central U.S.  In 1998 it acquired 89,000 subscriber lines and 19 exchanges in Wisconsin from Ameritech in what was once Wisconsin Bell territory.  CenturyTel also owns the former landline operations of Sprint.

In recent years, Qwest has struggled to remain competitive with its former Bell System brethren.  AT&T and Verizon (which own the majority of the former Bell System) have become the two dominant wireless players in the U.S. in recent years.  The merger will strengthen both companies’ positions and puts Qwest back in the spotlight.  During the dot-com boom, Qwest was seen as a harbinger of things to come and was valued as high as $60 billion, although it suffered greatly in recent years, in part due to accounting scandals and in part due to a lack of focus on mobile and wireless offerings.

The agreement, under which Qwest shareholders will receive 0.1664 CenturyLink shares for each share of Qwest common stock, has been approved by the boards of directors of both companies.  CenturyLink shareholders will own ca. 50.5% and Qwest shareholders will own ca. 49.5% of the combined company after the transaction closes.

Jonathan B. Spira is CEO and Chief Analyst at Basex

In the briefing room: Avaya’s post-Nortel roadmap

Thursday, January 21st, 2010 by Cody Burke

One of the final chapters in Nortel’s history has now been written.  Nortel’s vaunted Enterprise Solutions unit has been acquired by Avaya, a company that, similar to Nortel, traces its origins back to Alexander Graham Bell’s original patent for the telephone in 1874.


The end of an era

This week, Avaya announced its roadmap for the integration and continuation of products and services from Nortel and it’s good news for customers of both companies as Avaya management has found a way to meld the best offerings from both companies into a unified set of products.  However, there are a few speed bumps ahead.

First, customers not on the platform that becomes part of the merged product line face a forklift upgrade and significant cost in the not so distant future as the product portfolios from Nortel and Avaya were largely proprietary and incompatible with one another.

In addition, based on how past mergers of similarly-sized tech firms have fared, Avaya faces multiple challenges as it integrates multiple platforms and workgroups while trying to maintain its ability to service its customers at the levels they require and are accustomed to.  In addition, Avaya expects to support its newly-expanded product portfolio with a newly-shrunk workforce.

The flagship unified communications offering for Avaya will be Avaya Aura.  Aura will be enhanced with the addition of Avaya (formerly Nortel) Agile Communications Environment (ACE) as well as the inclusion of technology from Nortel for a common management infrastructure.  For existing Nortel customers, Aura can be added and will sit on top of existing deployments.  Likewise, Aura customers can add Nortel solutions to their deployments.

In the roadmap, Avaya laid out a move towards a SIP-based system that is multimodal with an open rules engine and conference-based communications.  To this end, Avaya Contact Center Elite will continue as the flagship enterprise solution, and Nortel Contact Center 7 will remain as a mid market solution.  The release of Contact Center 8 will add features and technology from Contact Center Elite, with the ultimate goal of improving scalability in order to enable the company to offer one contact center solution to cover everything from the middle market to high-end deployments.

For the small- and mid-sized enterprise market, Avaya plans to continue to supply Nortel Business Communications Manager, Norstar, Partner, and Integral 5, but it will eventually merge these solutions into Avaya IP Office as the flagship hybrid offering.  Nortel’s Software Communication System will be the flagship offering for SIP environments.

With regard to data products, Avaya announced it will adopt the current roadmap of data products from Nortel, including offerings for Ethernet Switching, Routers, Wireless Networking, Access Control, and Unified Management.

What Avaya has released thus far is a roadmap and there are many details that have not yet been released that should clarify further what Avaya’s combined offerings will look like.  Avaya did have plenty of time to contemplate and prepare for the merger and, if nothing else, we give them an A+ for effort here.

Cody Burke is a senior analyst at Basex.

In the briefing room: ViVu

Wednesday, December 16th, 2009 by Cody Burke

Online collaboration is tricky business.  It means many different things to different people.

Live, from New York, it's...

Live, from New York, it's...

For some knowledge workers, it means basic screen sharing and voice communications.  For others real-time video is key.  For most, however, typically deployed tools fall somewhere in the middle, in what is often a compromise of both ease of use and functionality.  Indeed, meeting attendees must often wait while technical glitches are resolved.

The next generation of online collaboration tools probably won’t resemble what we have become used to.  In fact, the very terms “Web conference” or “video conference” imply a certain aesthetic experience that has proven itself over and over to be not quite ideal for effective online work.  Sitting in a cubicle as a slide presentation whizzes by, accompanied by a faceless narrator or attending a meeting via an elaborate telepresence setup are not the only options.  Perhaps the next wave of online collaboration solutions will provide features that encourage true knowledge sharing, be it by slide decks, desktop sharing, chat, or video.

ViVu is a company that may very well be offering one of the first of a new generation of collaboration solutions.   Their solution is a Web-based videoconferencing tool that runs without any download or installation and features video, chat, desktop sharing, and the ability to share slide presentations.  The system is quite easy-to-use and the interface is clean and responsive and presents the user with modules that can be rearranged and resized on the screen.  Such functionality is quite useful; the video feed can be reduced to a small size and the presentation slides enlarged when necessary, or the slide deck minimized completely if the focus has shifted to the video feed.   Allowing the user to control his environment enables fine tuning that helps ensure sharp focus and maximum effectiveness.

The system scales from small meetings to large conference-style events.  ViVu is available as a Software-as-a-Service (SaaS) or as an on-site deployment that keeps sensitive information behind the firewall.

Cody Burke is a senior analyst at Basex.

Ericsson to Acquire Nortel’s GSM Unit Along with Kapsch

Wednesday, November 25th, 2009 by David Goldes

Some of the last pieces of Nortel’s business, its GSM units, will be sold in two parts for $103 million. 


Ericsson will acquire most of Nortel's GSM business

Telefonaktiebolaget LM Ericsson will purchase the North American GSM business for $70 million and Kapsch CarrierCom of Austria will acquire most of the remaining assets, mostly in Europe and Taiwan, for $33 million.

For Ericsson, the acquisition further solidifies its footprint in North America as the agreement includes the transfer of Nortel’s relationships with mobile operators such as AT&T and T-Mobile.  In July of this year, Ericsson emerged as the winner for Nortel’s CDMA and LTE Access units, gaining key relationships with Verizon Wireless, Sprint, and Bell Canada.  Nortel’s North American GSM operations generated ca. $400 million in revenue in 2008.  That deal has the potential to double the company’s revenue in the region.

“The transaction emphasizes Ericsson’s commitment to the North American market and strengthens our position as the leading provider of telecommunications technology and services in the United States and Canada.” said Hans Vestberg, Ericsson’s incoming President and CEO.

680 Nortel employees are expected to receive offers of employment from either Ericsson or Kapsch.  GSM (Global System for Mobile communications) is the most popular wireless technology standard for mobile phones in the world.  Nortel has been one of the world’s leading suppliers of GSM networks for many years.

Earlier this week, Nortel announced that Ciena, a network infrastructure company, was the successful bidder for the company’s Optical Networking and Carrier Ethernet businesses (see item in this issue under Mergers and Acquisitions).

The sale to Ericsson and Kapsch is subject to court approvals in the U.S. and Canada, which Nortel will seek at a joint hearing on December 2, 2009, and at a later date in France, as well as certain regulatory approvals and other customary closing conditions.

David M. Goldes is the president of Basex.

Skype Founders Sue eBay, Investment Group

Wednesday, September 16th, 2009 by Jonathan Spira

Skype founders Niklas Zennström and Janus Friis, through their company Joltid, filed suit against Skype in the Northern California U.S. District Court. earlier today, a move that could hinder eBay’s plans to sell 65% of the company to a group of investors.

Skype's founders are suing the company and investors for copyright infringement

Skype's founders are suing the company and investors for copyright infringement

The investor group, including Silver Lake Partners, Andreessen Horowitz, and Index Ventures, was also included in the suit.

Joltid holds the rights to some of the core technology used by Skype, technology  that eBay allowed Zennström and Friis not to include in the sale when it paid $2.6 billion for Skype in 2005.  Zennström and Friis left the company two years after the acquisition.  Joltid’s main product, Global Offering, is a self-organizing and self-healing peer-to-peer technology and is covered by U.S. patent 7,480,658.  Skype uses Global Index to enable voice, video, and chat communications.

The licensing arrangement has been seen by some as potential leverage that would allow the two to reacquire Skype from eBay once the company had decided to sell it, although eBay ultimately took a different course.  Earlier this year, Joltid alleged that Skype and eBay were in violation of the licensing agreement for the technology and terminated the agreement.

Joltid is seeking an injunction against Skype, damages for copyright infringement, and profits that Skype has made while using the technology in breach of its license.  The suit claims that Skype is using the Global Offering technology “in manners unauthorized by Joltid,” including making the software available to third parties as well as copying and altering it.

EBay, in SEC filings concerning the Skype sale, said it is working on developing technology that will replace what it licenses from Joltid. It also said that consummation of the deal was subject to “no settlement of the pending litigation with Joltid Limited having been effected without the consent of the Buyer (subject to certain limitations).” EBay, citing pending litigation, declined to comment.

The investment group was organized by Michelangelo Volpi, now a general partner at Index Ventures.  Volpi is the former CEO of video company Joost, which in turn is owned by the two Skype founders.  He was recently removed by a shareholder vote from Joost’s board of directors and from his position as chairman of the board.  Volpi is also named in the suit as a defendant.

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

Skype is set free

Thursday, September 3rd, 2009 by David Goldes

The sale of Skype to a group of private investors presents the company with both a challenge and an opportunity.

The challenge is to transform its popularity as a platform for free voice and video calls from computers and smartphones into greater profits.

The opportunity is to return to its roots, akin to its mode in the pre-eBay days, and get into startup mode.  This should translate into greater innovation and far more flexibility as well as the ability to operate with less disclosure (as a public company, eBay’s investments in developing new technologies, for example, would be disclosed in public filings).  The company can also grant new and existing employees stock options, something that can improve retention of key employees and help bring in new ones.

Rumors of a sale have been around for a while (we speculated on this last April).  Somewhat surprisingly, the buyer didn’t turn out to be a traditional telecommunications company with a vision for the future.  Another surprise was that the sale didn’t include Skype’s founders, who own key intellectual property that is currently part of a licensing dispute.

Regardless, as an independent, Skype itself may turn out to be a next generation traditional telecommunications company – if it can find a way to leverage its current worldwide base into a profitable one.

David M. Goldes is the president of Basex.

The Impact of Ericsson’s Nortel Victory on Nokia Siemens

Saturday, July 25th, 2009 by Jonathan Spira

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.

Ericsson Wins Nortel Bid

Friday, July 24th, 2009 by Jonathan Spira

Readers may also wish to see The Impact of Ericsson’s Nortel Victory on Nokia Siemens

One of the final chapters of Nortel’s history changed dramatically when Ericsson emerged as the winner of an auction that ended late Friday night for Nortel’s most profitable business unit.  It was just over a month ago that Nortel announced it would sell its CDMA and LTE Access units to Nokia Siemens for $650 million  in a stalking horse agreement.

Nokia Siemens and investor MartinPatterson Global Advisers, one of Nortel’s largest bondholders, competed unsuccessfully for a deal that includes CDMA technology and contracts as well as patents and engineers working on LTE (long term evolution), a mobile broadband technology.

Ericsson is acquiring a unit that manufactures CDMA mobile technology, a system used by several U.S.-based mobile operators including Verizon Wireless and Sprint as well as Bell Canada and Leap plus a group of 400 researchers working on LTE.  Once approved, the deal will give Ericsson a significant boost in its North American customer base, coming close to doubling its revenue in the region.

The transaction is on a cash and debt-free basis and is subject to customary regulatory approvals in addition to those of the bankruptcy courts overseeing Nortel’s liquidation.

Magnus Mandersson, presently head of Ericsson Northern Europe, will be appointed to the position of president of Ericsson CDMA operations, and Richard Lowe, currently at Nortel, will serve as chief operating officer.

“Acquiring Nortel’s North American CDMA business allows us to serve this important region better as we build relationships for the future migration to LTE,” said Ericsson CEO Carl-Henric Svanberg.  Before the auction results were announced on Friday, Ericsson reported that its second-quarter profit had fallen to SEK 831 ($111 million) from SEK 1.9 billion due to the current economic climate and restructuring charges and losses at Sony Ericsson.

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

Nortel to Liquidate Assets, Sell Wireless Unit to Nokia Siemens

Friday, June 19th, 2009 by Jonathan Spira

Nortel Networks, one of the oldest companies in the tech sector, will liquidate assets and sell its CDMA and LTE Access units to Nokia Siemens for $650 million.  Nokia Siemens is a joint venture of Nokia of Finland, a company founded in 1865, and Germany’s Siemens, founded in 1847.   The joint venture is acquiring a unit that manufactures CDMA mobile technology, a system used by several U.S.-based mobile operators including Verizon Wireless and Sprint.  The deal gives Nokia Siemens a significant customer base in the U.S., something that has eluded the company up until now.

Nortel said it was in advanced talks to sell other businesses and that it was applying to have its shares delisted from the Toronto Stock Exchange effective June 22.  Nortel filed for bankruptcy-court protection in January and has been attempting to sell its assets since then, having amassed almost $7 billion in losses over two years.

The company has a colorful history dating back to its founding in 1895 as Northern Electric and Manufacturing, a supplier of phones and other devices spun off from Bell Telephone of Canada.  It started looking into ways of using fiber optic cable in the 1960s at which time it also began designing digital telecommunications equipment.

In 1976, the company changed its name to Northern Telecom and announced Digital World, a family of industry-leading digital telecommunications products.  The DMS-100 became a mainstay of telephone company central offices (it could handle 100,000 subscriber lines without breaking a sweat) and the DMS line contributed greatly to the company’s profits for 15 years.

In 1998, with the acquisition of Bay Networks, the company changed its name once again, this time to Nortel Networks.  It gained prominence in the late 1990s as a manufacturer of fiber optic gear used to transport massive amounts of data over the Internet but was also one of the first casualties when the telecom bubble of the time burst, sending the company’s market capitalization from $398 billion (Canadian) in September 2000 to $5 billion in August 2002.

Now the company, which dropped “Network” from its brand but not from its legal name, will fade from history following a decade of failed and expensive acquisitions.  Its strategy, which was to buy established companies, didn’t work, largely due to an inability to integrate products from the newly-acquired entities into a common vision.  In addition to the Bay Networks acquisition for $9.1 billion, the company acquired software maker Clarify and then Alteon Web Systems for a total of $10 billion in 1999 and 2000 respectively. The company’s buying spree continued with Cambrian Systems for $300 million, Shasta Networks for $340 million, all the way to DiamondWare (3-D stereo conferencing) and Pingtel (SIP software) in 2008.

Nortel’s strategy contrasted greatly with that of companies such as Cisco, which only acquired small and innovative companies at much lower cost and then successfully integrated them into the business.  Today’s Nortel is also a stark contrast to Northern Telecom ca. 1976, when it announced Digital World.

As competition has intensified from North American, European, and low-cost Asian rivals, among them Alcatel-Lucent and Huawei Technologies, the company’s shares sank into the penny range in the months prior to its bankruptcy filing.  In addition, the global economic crisis has slowed spending on the gear that Nortel offers (which includes equipment for the enterprise as well as for telephone companies).

A likely acquirer for Nortel’s enterprise unit is Siemens Enterprise Communications, which has been in growth mode since it became a joint venture between Siemens AG and the Gores Group.

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