NSN sees Nortel CDMA purchase as bridge to LTE

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NSN sees Nortel CDMA purchase as bridge to LTE

By CAROLINE GABRIEL

Published: 23 June, 2009

READ MORE: Nortel Networks | Nokia Siemens Networks | CDMA | LTE

Nokia Siemens has opened up about the motives for its apparently risky decision to acquire Nortel's CDMA assets and move into a declining market that has proved an albatross for the bankrupt Canadian firm and for segment leader Alcatel-Lucent. The purchase appears to have just one target, to tap into the trend for CDMA carriers, faced with a lack of a 4G path of their own, to adopt 4G at an earlier stage than their W-CDMA counterparts.

In particular, NSN will be hoping for a share of the business of those CDMA majors which have announced they will roll out LTE trials and first commercial networks in the 2010-2012 period, such as KDDI in Japan, a Bell/Telus alliance in Canada and possible China Telecom. Of course, Verizon Wireless has blazed the trail, though it has publicly said it will stick with its existing choice of vendors - Ericsson and Alcatel-Lucent - as long as they deliver on their promises. But of course, cellcos often introduce additional suppliers as they scale up, and Huawei and NSN will both be waiting in the wings, watching for any slip-ups by the incumbents. Nortel was understood to have performed well in the Verizon trials - it has a strongly regarded LTE platform and R&D program, though its commercial success has, naturally, been killed by the company's parlous financial state.

The Verizon Wireless award to Ericsson proved that the CDMA-to-LTE market would not be entirely owned by the CDMA suppliers, but NSN remained in a weak position - not the market leader like Ericsson, but no CDMA experience or carrier relationships either (though it did get IMS business from Verizon). So the $650m price tag to gain these advantages overnight, plus an LTE technology program that may well be more advanced than NSN's own, is a cheap one.

NSN's CEO Simon Beresford-Wylie said Nortel's CDMA business was declining but still profitable. "We will get depth with those customers that we hadn't had before, and we'll use that as a springboard [to LTE]," he said, as well as gaining north American market share of 30.4%, up from 5.5% - better standing in the US has been one of Beresford-Wylie's key targets. He admitted NSN has not shone so far in the LTE RAN contracts, though it has won core network business, but it is very early days. "I would not judge the overall outcome on the basis of the few contracts that have so far been announced," he told an analyst call. "We see every opportunity to be part of the second wave."

All this does raise the issue of how interested NSN will be in Nortel's legacy CDMA customer base - those carriers that are in smaller markets or have no intentions of moving to LTE. These may well prove easy prey for ZTE, which is aggressively targeting the lower margin, less cutting edge CDMA operators, especially in developing economies, where the main chances for prolonging CDMA-based revenues lie.