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Nokia Siemens bid for Nortel's CDMA, LTE wireless assets could pay off

Nokia Siemens Networks' bid for Nortel's CDMA and LTE assets could allow the network core vendor to break into the wireless edge in light of the Nortel bankruptcy.

In light of the Nortel bankruptcy, Nokia Siemens Networks' (NSN) bid for Nortel's CDMA and LTE assets could finally allow the Nokia Corp./Siemens AG joint venture to succeed at the wireless edge.

"For [Nokia Siemens], this is quite a bold move," said Akshay Sharma, research director at Gartner. "They haven't had CDMA products historically; they were not a base station vendor, but they are already in the core for Verizon Wireless's LTE rollout."

Sharma said Nokia Siemens has enjoyed most of its success at the core of telecom networks, not only with Verizon but also with numerous second-tier and regional service providers like TELUS and Bell Mobility.

With the spoils of the Nortel bankruptcy, Nokia Siemens could leverage its existing core network equipment relationships and convince carriers to go with it for next-generation network rollouts. At the very least, it will pick up Nortel's CDMA service contracts with these providers over the next several years. The company could see a tidy profit for years to come from both next-generation and last-generation wireless networks.

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"Nortel announced $2 billion worth of CDMA deals alone with Verizon in December of 2006," Sharma said. "There are still lots of service and support revenues in the hundreds of millions of dollars."

The real potential for growth, however, lies in the jumpstart that the acquisition will give NSN's antenna and access business, even though Nortel's LTE offerings struggled to drum up any business.

"In North America, when you mention Chapter 11, that scares a lot of people, and I think that's what did Nortel in," Sharma said. "Under Nokia Siemens, parents who are strong financial entities, this could rebound that [Nortel] intellectual property and those products."

While Nokia Siemens' $650 million proposal for the assets is not final, analysts expected that the company would face little serious competition when bidding for the LTE and CDMA assets.

Tom Nolle, president of CIMI Corp., said Nortel had probably already discussed a possible sale to Nokia Siemens' competitors like Huawei and Ericsson and received only lower offers, if any.

NSN's antenna and access business to get the big boost

"But the law requires that there be an auction here, and there is always a chance someone else will enter a higher bid than the current NSN offer," Nolle said. "If that happens, though, I'd expect that NSN would just bid higher."

Once the bidding is complete, Sharma said, Nokia and Nortel could begin taking advantage of synergies in engineering expertise immediately, but it would probably take a year to integrate and "productize" the technological additions.

As for Nortel, the company still has a large metro Ethernet organization that must – and probably will – find a bidder.

The question, however, is who: Nortel has been working to sell that division for longer than the wireless assets but has yet to find a bid that matches its high valuation.

"That was the first asset that Nortel put up for sale last September, but they thought they would get a valuation somewhat similar to what Ciena was worth at the time [roughly $5 billion]," Sharma said.

The metro Ethernet division is still quite a valuable asset, he said, but the current economy demands a more reasonable valuation. Potential suitors include Huawei, which could use the purchase as an easy entrance and instant credibility into the North American market, and Tellabs, which has plenty of cash on hand and no strong metro Ethernet offerings to date.

"You're not going to get liquidation pricing, but you're not going to get the huge deals you saw the earlier part of this century," Sharma said. "It might be a more fair assessment based on revenue projections and actual product that you'll get right now."

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