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Huawei now rumored as ALU suitor, as LTE battle heats up

By CAROLINE GABRIEL

Published: 28 August, 2009

READ MORE: Spectrum | Huawei Technologies | Alcatel-Lucent | LTE

The infrastructure vendors' battle to score early LTE points, as operators start to trial the technology in earnest, is heating up, but will all the players still be here when the commercial market becomes real? Not only has Nortel's LTE business fallen to Ericsson, but there is increasing speculation that Alcatel-Lucent could merge with a rival, either Nokia Siemens or, in a new set of rumors, a Chinese giant (most likely Huawei, which is stealing the crown for LTE tests even from heir presumptive to the 4G throne, Ericsson). Also interesting in terms of how the LTE vendors map out from 2010 onwards is the fate of the LG-Nortel joint venture, whose owners this week demonstrated the first LTE-CDMA active hand-off, vital for early adopters like CDMA carriers Verizon Wireless and KDDI.

Nortel's controlling stake (50% plus one share) in the unit, which was not involved in the bankruptcy proceedings, will soon come up for sale. LG could try to buy out the rest of the shares, but its advanced technologies and patents could also attract other suppliers, even Ericsson (which has also refused to rule out a follow-on offer for more of Nortel's own LTE patent portfolio, excluded from its own recent purchase of LTE and CDMA assets). It is particularly important for Ericsson to gain some experience in CDMA, as it seeks to penetrate this previously closed segment at the LTE migration stage (having won a major part of the Verizon Wireless deal).

So LG-Nortel could come onto the Swedish giant's radar. This week its two parents completed the first 3GPP standards-based active hand-off between CDMA and LTE, as part of a demonstration in Ottawa, Canada over 700MHz spectrum (the band to be used by Verizon Wireless in its first roll-outs). Nortel was involved in the Verizon trials though its precarious financial position presumably excluded it from commercial deals, but its networks were used in the demo along with LG terminals, conducting video downloads, web surfing and VoIP while moving seamlessly between 3G and 4G.

Huawei has yet to make a breakthrough with a tier one US cellco (though it has won part of Clearwire's business) but will be pushing its LTE credentials hard in the country. And now it is being touted as a potential bidder for Alcatel-Lucent, which would strengthen its US and European position. Last week all the talk was of a possible merger with NSN, and now shares in the French giant have leapt by as much as 16% amid talk of a Chinese deal, according to Reuters. Huawei is considered the most likely, though arguably ZTE needs ALU's assets more urgently, since it is in a weaker position in advanced technologies and developed markets than its compatriot, which shows signs of leading early LTE under its own steam.

"Chinese firms including ZTE are very strong competitors, and have their own substantial R&D operations," Ren Wenjie, a telecoms analyst with First Capital in Shenzhen, China, told Reuters. "They probably wouldn't be looking at buying the whole of Alcatel-Lucent, but rather at specific business units that would fit into their long term strategy." ALU has a market value of about €6.3bn ($8.9bn), which would indicate a purchase price of €8bn to €9bn under current market conditions.

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