Sep. 1, 2006

Alcatel just inked a deal with Nortel Networks to acquire the Canadian supplier’s UMTS radio access business for $320 million.

Alcatel says the purchase will strengthen its UMTS market position as well as its research and development capabilities, namely in HSxPA and third-generation Long-Term Evolution.

“We are clearly poised to become a strong No. 3 in UMTS and HSxPA,” said Marc Rouanne, president of Alcatel’s mobile communications activities. “Combined with our strong GSM/EDGE position, our early leadership in WiMAX and our strong commitment to LTE, this acquisition will add further momentum to Alcatel’s broadband wireless access strategy.”

Alcatel said the agreement includes 14 Nortel UMTS customer contracts and spells out that Nortel’s UMTS business employees will transfer to Alcatel. The proposed sale includes Nortel’s UMTS access product portfolio made up of the Radio Network Controller and Node B products and OAM solutions, related services and associated assets.

Alcatel is also in the midst of acquiring infrastructure vendor Lucent Technologies Inc.

“Through the contemplated merger with Lucent, the combined company will also enjoy a leading position in CDMA EV-DO, including a clear commitment to Rev. C, thus offering the most comprehensive and innovative wireless access portfolio in the industry,” Rouanne added.

For its part, Nortel said the sale of its UMTS business will enable the company to simplify its business and “strategically focus its investments for leadership in key markets.”

The company said it plans to focus on areas such as next-generation mobility, enterprise transformation, as well as services and applications, but Nortel added that it will continue to develop and support solutions for the evolution of GSM access and core, GSM-R, GPRS and EDGE technologies along with CDMA access and core and UMTS core.

Nortel’s divestiture is in alignment with its previously stated business strategy to “increase investment in key areas, partner in others and divest where there is no path for it to lead or realize attractive returns.”

Indeed, Mike Zafirovski, chief executive officer of Nortel, said in a press release, “Nortel is sharpening its focus on the markets in which we intend to lead. Our UMTS access business lacks the scale and momentum needed to become profitable.”

He added, “With next-generation mobility, we see an opportunity to change the game by applying our networking expertise and technology innovation to significantly alter the economic paradigm of mobility solutions in the future.”

Alcatel pointed out that it has included Lucent in the planning stages of its UMTS acquisition and said it will continue to involve Lucent as the deal moves forward. The companies are set to vote on their proposed merger Sept. 7.

Bill Lesieur, director at Technology Business Research, concluded that Alcatel’s move to snap up Nortel’s UMTS business sets up a telecom equipment market dominated by three top players: L.M. Ericsson, Alcatel/Lucent and Nokia Corp./Siemens A.G.

Meanwhile, Lesieur said he expects Motorola Inc. to seek differentiation by targeting emerging technology areas, such as WiMAX as the top three players go after scale and portfolio depth to deliver end-to-end solutions and a full range of services.

Looking ahead, Lesieur said the Nortel/Alcatel UMTS deal showcases the uncertainty in the competitive environment that the industry will face as it shifts beyond 3G technology. “The major players are making very different assumptions on 4G technology, differentiation factors and competitive positioning,” he said.

Nonetheless, Lesieur likes the timing of the move, saying, “The structural changes in the telecom equipment industry that are happening now will re-shape the competitive environment for the next 5 to 10 years, so the time is now to make a move.”

Jeff Kagan, an independent telecom analyst, said, “This seems to make sense. I think Nortel will make several similar moves going forward. As Nortel redefines their business model, I expect more of these kinds of announcements.”

Source: RCR News