NSN loses market share as services outshine infrastructure

“The telecom infrastructure market is evolving, and the most effective growth opportunities are in services -- in particular managed services, consulting assistance in operations and care services,” Kallasvuo said today during Nokia’s earnings call. He said NSN’s services business now accounts for 45% of overall revenues, a reflection of both increased activity in that space as well as declines in its infrastructure groups. In the first quarter, services accounted for 40% of revenues, which were up from an average of 30% in 2008. NSN has more than 200 managed services contracts worldwide, but it faces stiff competition from arch-competitors Ericsson (NASDAQ:ERIC) and Alcatel-Lucent (NYSE:ALU). North America is proving to be one of the biggest battlegrounds for services contracts as operators here still have been slow to embrace the network management outsourcing global trend. NSN won one of the first outsourcing contracts, taking over Embarq’s network operations centers, but Ericsson walked away with the biggest prize so far earlier this month. Sprint (NYSE:S) agreed to turn over the day-to-day operations of its wireless and wireline network to the Swedish vendor for the next seven years in a deal valued at $4.5 billion to $5.5 billion.

NSN may soon get a leg up in North America, though, as it vies to become not only the world’s second largest GSM vendor but the second-largest CDMA vendor. NSN has submitted a $650-million bid for bankrupt Nortel’s CDMA business and LTE radio assets, which, if accepted, would make it a formidable force in North America, second only to Alcatel-Lucent. So far, no one has made a counter-offer, but Nortel’s creditors aren’t pleased by what they consider a low-ball offer for the $2 billion CDMA business and are reportedly putting together a counter-proposal to recapitalize the company. Another vendor could also swoop in with a higher bid for the same assets or a more encompassing proposal for Nortel’s other businesses. In bidding for the CDMA and LTE groups, NSN left considerable wireless assets on the table, including Nortel’s $1.5 billion GSM radio and core business, as well as its Nortel’s metro-Ethernet and Enterprise divisions.

NSN, however, may be prepared to up its bid if it gets pressure from creditors or other bidders. Speaking at the Economic Club of Canada in Toronto, NSN head of North America Sue Spradley said NSN expects other bidders for Nortel’s pieces before the July 21 court-imposed deadline, according to the Toronto Star. Spradley said NSN may get involved in a bidding war with other vendors, which may result in layoffs if the assets prices are forced up too high.