Ericsson Snags a Coup with Nortel – Moves Back into CDMA Market (and Gains Customers)

| Jul 27, 2009 | Wireless Infrastructure | Competitive Intelligence Report

| Analyst: Peter Jarich

Current Perspective: Positive
Vendor Importance: High
Market Impact: Very High

Event Summary

July 24, 2009 – Ericsson announced it had entered into an agreement to acquire parts of Nortel’s Carrier Networks division relating to the vendor’s CDMA2000 and LTE assets. Structured as an asset sale for a cash price of $1.13 billion, the purchase marks an end to an auction initiated by Nortel and subject to court approvals. Beyond CDMA customer relationships and accounts that earned about $2 billion in 2008, the deal comes with about 2,500 employees including roughly 400 focused on LTE.

Analytical Summary

• Current Perspective: Positive on Ericsson’s acquisition of Nortel’s CDMA and LTE assets. While no different from any acquisition, the deal is still subject to court approvals and will come with its own share of integration headaches (especially given the competitive state of CDMA). Regardless, the deal gives Ericsson access to channels into customers it’s trying to sell on LTE, and those it already has (e.g., Verizon Wireless). Combined with Nortel’s 2008 CDMA revenues and the boost in confidence Ericsson lends to this business, the deal – at $1.13 billion – should pay for itself.

• Vendor Importance: High to Ericsson, because the company has made growing its business in North America a priority. To be sure, the company would be fine without Nortel’s assets; it is the wireless vendor everyone else is trying to beat, with the GSM and WCDMA channels to build a successful LTE business. Yet, where the company wants to drive its North American momentum more quickly, build on its early LTE leadership, and grow its networks business at a time when they’re on the decline, Nortel helps on all fronts, while heading off any potential competition from NSN at Verizon, had the company managed to acquire Nortel’s CDMA business instead of Ericsson.

• Market Impact: Very high on the wireless infrastructure market, because the deal introduces a new entrant into the CDMA space. It’s been clear for some time that Nortel’s wireless business wouldn’t survive on its own. Whoever picked it up would change the face of wireless – in North America and beyond. In particular, the deal sets up the industry for a new competitive landscape, with a more threatening competitor to all current CDMA players as they look to build on CDMA deployments, and sell their CDMA customers on LTE. Of course, it could also derail Ericsson’s focus on other technologies if a painful integration wears on it.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

Recommended Competitor Actions

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Recommended End User / Customer Actions

• Support Ericsson: When NSN put in its bid for Nortel, Nortel customers came out to support the deal. It made sense: NSN would lend the vendor’s CDMA and LTE business needed stability and ensure on-going R&D support. Ericsson lends the same values. While customer support may not be enough to speed the closing of the deal, it can’t hurt.

• Engage with Ericsson. In the run-up to the needed court approvals, it may be difficult for Nortel’s CDMA customers to begin working with Ericsson. As soon as the deal is officially complete, however, operators will want to work very closely with Ericsson to understand the company’s priorities and ensure on-going support. How will current CDMA network demands be met? How will service continuity be ensured? How will sales channels and support change? What does Ericsson’s CDMA R&D roadmap look like? How will CDMA to LTE migrations integrate kit from Nortel and Ericsson? Now is the time to prepare these questions in order to seize the opportunity for engagement when Ericsson takes control of the business.

• Non-RAN Assets. Operators need to know how CDMA2000 assets outside of the radio access network will be supported by Ericsson going forward. In the packet core, Nortel had an on-again, off-again relationship with Starent that ended as the company began work on its own PDSN. Is this new PDSN included in the CDMA deal? Likewise, despite its well-known switching prowess, Nortel’s voice business remains separate from its CDMA business. How then will CDMA voice customers be supported? In a worst case scenario, operators may need to support Nortel based CDMA networks with products from a variety of other vendors, sourcing complexity that could be used as a bargaining chip.

• Investigate Services. Nortel prided itself on a solid professional services business. Ericsson, however, is clearly a stronger services player with a deeper set of capabilities and commitment to the space. In the long-term, all customers will be relying on these capabilities for network service and maintenance support. In the near-term, operators need to look for new services that Ericsson can deliver (but Nortel could not) and the synergies between these services and Ericsson’s new CDMA network assets.