Alcatel Acquires 3G Assets from Nortel for $320 Million
TMCnet Executive Editor
In the midst of its current multi-billion-dollar merger with Lucent Technologies (News - Alert), Alcatel (News - Alert) will acquire the UMTS radio access assets of Nortel (News - Alert) for $320 million, the telecom equipment giants announced on Friday.
On a conference call with financial analysts and the media, Nortel President and CEO Mike Zafirovski was quick to point out that his company remains committed to next-generation mobility through its remaining GSM access and core business, Long Term Evolution (LTE), WiMAX as well as its CDMA businesses.
But given Nortel’s market share in the 3G UMTS business especially in light of the millions that it has invested in the 70+ patents covering OFDM and MIMO antennae technologies, it simply didn’t make sense for Nortel to continue to go it alone.
“We did not see a way for us based on our current scale to be profitable. We didn't see a way for us to have a reasonable return,” Zafirovski acknowledged during the conference call.
Analysts were overjoyed with the move. “This is a move that should have been made several years ago but better late than never,” said Jeff Kagan, noted telecom analyst.
Zafirovski reaffirmed that Nortel's strategy is to continue to focus on three core elements: next-generation mobility, enterprise transformation, and
services and applications. For example, in July the company announced a key strategic alliance with Microsoft (News - Alert) - ) to build out a Unified Communications practice.
However, when asked by one investor if the company was finished its strategic review or if it would exit any other businesses, the chief executive replied: “That process will never be over.”
“Nortel is refocusing on fewer businesses where they can be profitable. 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,” Kagan said.
With regard to the build-out of its 4G business, Zafirovski admitted that Nortel has learned valuable lessons from the 3G-UMTS business. “We did have a significant advantage in UMTS in the late 1990s,” he said.
But rather than execute on a plan to capitalize on its technological edge, Nortel failed to tap into the existing 2G wireless market and never built out its own ecosystem of partners and suppliers. And then, of course, there were the accounting issues that eventually led to Zafirovski’s appointment.
“Those are the three lessons learned that we plan to apply” in building out the 4G businesses, he confessed.
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. It is anticipated that the significant majority of employees of Nortel's UMTS access business will transfer to Alcatel.
For its part, Alcatel said it will continue to involve Lucent in the implementation and integration of the assets “to achieve the most efficient fit within the combined company.”
Completion of the transaction is subject to, among other things, the negotiation and execution of a definitive agreement between Nortel and Alcatel, completion of consultations with work councils and other employee representatives, and customary closing conditions including regulatory approvals.
The parties are targeting completion of the transaction in the fourth quarter of 2006.
The deal comes as Alcatel is trying to win shareholder approval for its merger with Lucent, clearance that is reportedly being complicated by one investment firm that stands opposed to the deal. Shareholders from both companies are schedule to vote on September 7.
Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.
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