NSN racing the clock on Nortel LTE integration

Nokia Siemens Networks (NYSE:NOK, NYSE:SI) hopes to close its $650 million deal with Nortel Networks (TSE:NT) and take possession of its CDMA and long-term evolution (LTE) assets in the third quarter, possibly as soon as August.  NSN has plenty of reasons to fast-track the deal, but its biggest incentive is the need to integrate Nortel’s LTE technology into its own 4G portfolio as quickly as possible. Nortel’s LTE technology may still be fresh today, but it comes with an expiration date.

“Time is our enemy,” said Richard Lowe, Nortel’s president of Carrier Networks. “LTE is not fully commercial yet. There is still an opportunity to merge our LTE platform with another vendor’s without affecting the business.” The LTE market is still in its infancy, and no vendor is manufacturing an LTE base station in volumes. But as more operators finalize their LTE plans, Lowe said, vendors will need to have their final, fully commercialized products ready to deploy.

Only a handful of operators have finalized their LTE plans and selected their vendors, namely Verizon Wireless (NYSE:VZ, NYSE:VOD) here in the US, NTT DoCoMo (NYSE:DCM) in Japan and a few Scandinavian operators. But many more operators have begun testing and trialing LTE equipment, and several are set to pick their suppliers within the year. Both AT&T (NYSE:T) and T-Mobile USA (NYSE:DT) have already issued requests for proposals (RFPs) soliciting bids for forthcoming trials—both of which Nortel has responded to. AT&T plans to select its vendors this year and deploy its first trial networks in 2010.

NSN will need to integrate Nortel’s technology into its Flexi base station line as quickly as possible if it has any hope of meeting the deadlines of first-to-market operators if they aren’t already out of reach. Otherwise, NSN may have to wait until the next wave of global LTE deployments before it can offer the combined radio access platform.

It also isn’t clear exactly how NSN would combine those portfolios. NSN head of North America Sue Spradley said NSN hasn’t made any firm decisions on which aspects of Nortel’s LTE technology, versus which aspects of NSN’s, it plans to use in a new base station. NSN still has to evaluate Nortel’s technology once its closes the deal, she said.

“We believe they have some software and hardware strengths and we have some software and hardware strengths,” Spradley said. While aspects of one product line may have to be discarded in favor of another, Spradley said, the core technology of both vendors’ portfolios will likely be preserved. “We don’t see it as throwing away any R&D but rather evolving into a single product line,” she said. “How they evolve and when they evolve, I can’t tell you yet.”

The least likely scenario is NSN simply replacing its own LTE base station with its own. Nortel’s LTE prowess is widely respected in the industry, but NSN has made considerable investment into its own modular, software-defined radio base station architecture, building features into the Flexi such as low-power consumption and multi-mode and multi-radio configurations that it probably has no intention of abandoning. The base station is already deployed in more than 100,000 locations, each of which could technically support a software upgrade to LTE. “I feel confident the Flexi will be in our product line for some time,” Spradley said.

The fact that so much of the base station platform is built on software may work in NSN’s favor. What differentiates a UMTS Flexi from an LTE Flexi is a swappable module, so any integration work done solely on the software level could be more easily incorporated into the existing design. “If you’re able to port another’s advanced software onto to your hardware, you’re clearly a step ahead,” Nortel’s Lowe said.

NSN, too, has made it clear that its primary interest in Nortel’s technology lies in its code and its math. On Monday, NSN Chief Executive Officer Simon Beresford-Wylie singled out Nortel’s software and algorithms critical to creating the complex sub-channels in any LTE system. Beresford-Wylie also pointed to Nortel’s work in multiple-input multiple-output (MIMO) smart antenna technology, which has both hardware and software components.

NSN isn’t guaranteed Nortel’s LTE assets, either. As part of its ‘stalking horse’ offer, NSN essentially becomes the high bidder for Nortel’s LTE assets and CDMA business in an auction managed by the bankruptcy court. Unlike a normal auction, in which companies bid on a specific set of assets, a competitor could choose to submit a counter-bid for Nortel’s LTE or CDMA business separately. Or it could choose to expand NSN’s offer to cover all of Nortel’s wireless assets. NSN’s bid left a sizable GSM and UMTS switching business on the table.