By George Bevir
Nokia Siemens Networks' proposed deal to take on CDMA and LTE assets of ailing Canadian vendor Nortel will have an impact on the industry in the Middle East and Africa region.
Nokia Siemens Networks' proposed deal to take on CDMA and LTE assets of ailing Canadian vendor Nortel will have an impact on the industry in the Middle East and Africa region.Last month's announcement that Nokia Siemens Networks had made an offer of US$650 million to acquire the LTE and CDMA assets of Nortel signalled the end of the road for the Canadian vendor, with the rest of the company's divisions to be sold instead of an attempt made to reorganise them into a profitable business.
Nokia Siemens Networks' (NSN) chief executive Simon Beresford-Wylie explained that the deal would give NSN a "deeper presence in Canada and a deeper customer presence across North America", where NSN has a limited share of the market.
As margins get thinner on the equipment, they have to make up for the lost profits elsewhere. - Emir Halilovic, IDC
NSN will acquire the underlying software and hardware of Nortel's CDMA division along with employees in development, product management, operations, sales and services, based in Canada and the US, and a small number in Mexico and China.
Beresford-Wylie was keen to point out that the CDMA division is "good and profitable", and as part of the deal, NSN will acquire contracts with North American operators Sasktel, Leap and US Cellular.
NSN will be looking to capture Nortel's global customer base of CDMA clients who are without a migration path at the moment, but with only 57 CDMA operators in the Middle East and Africa spread across vendors, according to the latest figures from the CDMA Development Group, the impact on the region will be slight.
Emir Halilovic, program manager Networking and Infrastructure at IDC, says that Nortel was not really present in the major 3G deals in the Middle East, after it sold its 3G development efforts to Alcatel Lucent, effectively ruling itself out of deals relating to 2G and 3G migration, and to subsequent upgrades to LTE.
Milan Sallaba, partner at Oliver Wyman, points out that whilst the NSN deal will focus on North America, "any movement in the industry will have regional repercussions due to the global nature of the business," and he says that it will strengthen NSN's LTE business, "which could be very relevant for Middle Eastern operators going forward".
In terms of LTE, NSN will acquire Nortel's access products, including the development trial and product management resources in North America and around 400 employees.
"With NSN, a player that is highly active in the region, strengthening its LTE R&D and product development, operators could benefit down the line from one more network provider being able to offer what they are looking for, further strengthening competition for network providers, but potentially benefitting operators," Sallaba says.
NSN missed out on the first round of lucrative LTE contract awarded by US operator Verizon, which were awarded to Ericsson and Alactel Lucent. But during a conference call at the end of last month Beresford-Wylie revealed that he now sees NSN as a firm favourite to secure a contract during the second round of contract awards.
Sallaba says that LTE is one of the anticipated growth sectors in the network industry over the coming 3-5 years and highly relevant for the Middle East. But he points out that it is too early to say whether the deal will have any real impact on NSN's competitive positioning, as legacy relationships, customer service, vendor financing and price and product availability all play a major role in determining which vendor picks up a network equipment contract.
Halilovic says that in the wireless market it is now down to a three way race between Ericsson, Huawei and Nokia Siemens Networks. The NSN/Nortel deal is unlikely to have a major impact on these big players, and Ericsson's chief financial officer said at the end of last month that he expects the vendor to remain as market leader. But it could have an impact on the smaller vendors; when the deal was announced it dented Alcatel Lucent's share price, which fell when the deal was announced, and it has also been suggested that it could leave Motorola exposed.
"The next stage that we will see globally in my view, is the transformation of some of the big vendors into services companies, and the commoditisation of the equipment market but these are long term trends," says Emir.
"The industry is characterised by high capital requirements, low margins and arguably limited growth prospects, and is very competitive as a result.," Sallaba says.
Emir suggests that as margins get thinner on the equipment, vendors will have to make up for the lost profits elsewhere. "The Chinese are in a better position when it comes to this trend, on the other hand western European companies now have better position when it comes to services, integration, build out and planning, all sorts of things that lie between the traditional telecoms network and it."