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NSN: Nortel CDMA purchase about customers, not growth

CDMA is a declining market, says Nokia Siemens CEO, but Nortel's CDMA customer base will serve as a launch pad to LTE

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Nokia Siemens Networks (NYSE:NOK, NYSE:SI) Chief Executive Officer Simon Beresford-Wylie acknowledged today that Nortel Networks’ CDMA business was a declining though still profitable one. But NSN’s primary aim in bidding on the bankrupt Canadian vendor’s CDMA operations is not to grow the market for the 2G-3G technology but to acquire Nortel’s prominent CDMA customer base—relationships it can not only leverage in creating a dominant position in North America but use for future 4G long-term evolution (LTE) sales, Beresford-Wylie said.

“We will get depth with those customers that we hadn’t had before, and we’ll use that as a springboard,” Beresford-Wylie said today. The CDMA acquisition will turn NSN’s meager 5.5% market share in the North American wireless infrastructure market into a 30.4% share, raising it from No. 6 to No. 2 in the region behind Alcatel-Lucent (NYSE:ALU).

The $650-million deal, if closed, would make NSN the world’s second-largest CDMA vendor and give it established radio access relationships with previously inaccessible operators such as Sprint (NYSE:S), US Cellular (NYSE:USM), Leap Wireless (NASDAQ:LEAP), MTS (TSE:MBT), SaskTel and particularly Verizon Wireless (NYSE:VZ, NYSE:VOD). While NSN has made inroads with the country’s largest operator—landing a deal to supply aspects of Verizon’s IP multimedia subsystem (IMS) service delivery architecture—it was left out of VZW’s far more lucrative LTE radio network contract.

Meanwhile, Nortel’s CDMA business remains one of its strongest and most profitable businesses, Beresford-Wylie pointed out, making it a good investment, though its returns will eventually diminish as CDMA operators move from CDMA to 4G technologies like LTE and WiMax. NSN plans to approach CDMA as it does its GSM business, a stable and profitable enterprise requiring little research and development but one that is being heavily supplanted by high-speed packet access (HSPA) and eventually LTE. So far, NSN’s success in LTE has been limited to core contracts, but Beresford-Wylie pointed out only a handful of radio contracts have so far been announced.

“I would not judge the overall outcome on the basis of the few contracts that have so far been announced,” Beresford Wylie said. “We see every opportunity to be part of the second wave.”

CDMA operators have been pursuing 4G with a greater sense of urgency than NSN’s other 3G customers, though. While UMTS operators are still moving up through the iterations of HSPA and many still have HSPA+ in their roadmaps, most CDMA operators’ upgrade paths end at EV-DO revision A, which most have already deployed. Consequently, many more CDMA operators than UMTS operators have announced their 4G plans. By gaining incumbency status with those operators, NSN will have a significant advantage in winning their future LTE business, Beresford-Wylie said.

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© 2014 Penton Media Inc.

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