Alcatel buying Nortel UMTS operations

Nortel Networks today said it has agreed to sell its lagging UMTS business to Alcatel for $320 million as part of its new restructuring strategy in which it will exit all businesses where it can't maintain a top three competitive position.

The deal would considerably slim down Nortel's wireless operations, allowing Nortel to maintain its leading position in CDMA, remain a player in core switching, WiMAX and 2G GSM networks, but causing it to cut and run from the largest growth mobile infrastructure in the world.

“Do we wish we were 25-30 points marketshare?” Nortel CEO Mike Zafirovski asked during a conference call. “Absolutely. We’d love to have that position. But absent that, having terrific products and solutions and an alternative to suppliers is powerful. I’m confident that through the decades of relationships with carriers, doors will be open for assessment of our capabilities.”

Meanwhile, Alcatel's position in UMTS will be greatly boosted especially if its merger plans with Lucent Technologies come through. Alcatel estimates that Nortel's UMTS division combined with its own European-focused and Lucent's North American-centric operations will give it the number 3 global spot in UMTS and high-speed packet access technologies, behind Nokia and Ericsson. In a separate media call outlining the deal, Alcatel mobile communications president Marc Rouanne said that in this ever-consolidating global marketplace economies of scale are critical to compete.

“Size matters,” Rouanne said. “In a world where 3G will lead it’s very important to benefit from an established footprint.”

Nortel’s UMTS business certainly has the footprint. Nortel has an estimated 10% global UMTS market share, which while small compared to the more than 30% shares of Ericsson and the combined Nokia-Siemens, is considerable compared to the paltry 5% to 6% a combined Lucent and Alcatel would hold. Specifically Nortel has major UMTS and HSDPA contracts with Orange in Europe and through its partnership with LG the two major South Korean mobile carriers.

The deal would add to its already imposing post-merger standing, making it a leading player in most of the world's leading technologies, including DSL, optical transport, switching and CDMA. In addition, Alcatel has invested heavily into its WiMAX portfolio, hoping to gain a market advantage over other vendors. In mobile alone, Alcatel said the combined companies would have infrastructure in 12 of the top 15 wireless networks in the world.

Nortel and Alcatel said the transaction is scheduled to close in the fourth quarter.

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