IHS Global Insight Perspective | |
Significance | This makes for the second significant consolidation in the wireless industry over the last year following the sale of Nortel's infrastructure business to Ericsson. |
Implications | Nokia Siemens Networks (NSN) will gain Motorola's significant CDMA assets, but most of all will benefit from access to Motorola's incumbent customer base in the United States and Japan. |
Outlook | The wireless industry has faced radical pressures with the recession and competitive positioning from Chinese vendors, compounding changes in capital spending as networks and technologies have matured. This is intended to position NSN to take advantage of the positioning of Motorola with CDMA operators, which are likely to move over to LTE in coming years. |
Nokia Siemens Networks (NSN) and Motorola have officially announced a deal for NSN to acquire the wireless infrastructure assets of Motorola for US$1.2 billion in cash with an expected closing date before the end of 2010, subject to the usual closing conditions (see World: 14 July 2010: Nokia Discussing Motorola Infrastructure Unit Acquisition—Reports). NSN will gain the majority of Motorola's wireless network infrastructure assets, including a large global footprint in CDMA networking. The deal will include GSM, CDMA, W-CDMA, WiMAX, and LTE infrastructure businesses, including 41 WiMAX contracts in 21 countries, 30 active CDMA networks in 22 countries, 80 active GSM networks in 66 countries, and what is described as "excellent traction with LTE early adopters".
NSN will take on 7,500 Motorola employees, including research and development sites in the United States, China, and India. NSN chief executive Rajeev Suri noted that no redundancies are expected to be necessary.
Motorola will retain the iDEN business, along with all patents related to the wireless infrastructure business and other selected assets. The Wall Street Journal reported this week that Motorola will integrate iDEN into the public safety network technology business (see World: 19 July 2010: Nokia-Siemens/Motorola Deal Imminent—Reports). Motorola and NSN are also exploring a global relationship for public safety communications, which would combine Motorola's public safety solutions with NSN's commercial LTE solutions and would become part of the Motorola Solutions business (see World: 12 February 2010: Motorola Confirms Split Into Consumer Devices and Enterprise Segments and 2 July 2010: Motorola Files Separation Registration Form).
Outlook and Implications
This, together with the collapse and buyout of Nortel by Ericsson, is part of the second wave of consolidation in the wireless infrastructure industry in the last decade following the merging of Alcatel-Lucent and Nokia-Siemens. However, these consolidations barely had a chance to find their feet before running into the headwinds of the financial crisis and resultant cuts in capital expenditure (see World: 19 June 2006: Nokia, Siemens in Multi-Billion-Dollar Networks Unit Merger and 31 July 2007: Alcatel-Lucent Swings to Q2 Loss as Merger Disruptions Take its Toll). The cuts in capital spending, driven by the recession, were further compounded by highly competitive pricing from Chinese vendors, fewer greenfield deployment opportunities, and moves by carriers and vendors to reduce the need for full rip and replace upgrades, which have changed the structure of the market fundamentally (see World: 25 January 2010: Ericsson's Q4 Operating Income Falls 16%, Maintains Market Share;16 October 2009: Nokia Swings to Q3 Operating Loss, Writes Down NSN b US$1.3 bil.; and 30 October 2009: Alcatel-Lucent Q3 Loss Deepens as Vendor Crisis Continues). However, there are still significant opportunities—the Financial Times reports that NSN has won a deal, valued at US$7 billion, to deploy an LTE network for the LightSquared network from SkyTerra, which is largely owned by Harbinger capital and has significant interests in Inmarsat. That will see a satellite and terrestrial network, including 40,000 base stations, built out and offered on a wholesale basis, covering 92% of the U.S. population by 2015 (see United States: 30 March 2010: AT&T and Verizon Face Potential Block on Wholesale Access to SkyTerra Network).
NSN mainly delivers GSM/EDGE, W-CDMA/HSPA, and LTE solutions. This acquisition will give the business an entry point into CDMA operators, which will likely be converting to LTE in the coming years. Together with added scale, this legacy/incumbent positioning should help position the vendor to compete against other vendors, such as global number one Ericsson, and the highly competitive Asian vendors Huawei and ZTE.
NSN's presence in Japan and the United States will particularly be enhanced by the deal—Motorola's Home and Networks Mobility segment generated 49% of revenues in the United States, while Nokia as a whole has always been weak in the United States, generating just 4.2% of revenues there in 2009, despite the high value of the market. The companies note that subsequent to the deal, NSN will become the number three wireless infrastructure vendor in the United States, the number one foreign wireless vendor in Japan, and strengthen its current number two position in the global infrastructure segment. NSN will gain incumbent relationships with some 50 operators, including China Mobile, Clearwire, KDDI, Sprint, Verizon Wireless, and Vodafone. Ericsson has been leading the market and boosted its North American and Korean/Asian businesses with the acquisition of Nortel's wireless units last year (see World: 30 June 2010: Ericsson Completes Acquisition of Nortel-LG Stake; 27 July 2009: Ericsson to Acquire Nortel Wireless Assets for US$1.13 bil.; and 25 November 2009: Ericsson and Kapsch CarrierCom Win Nortel's GSM/GSM-R Unit Auction with US$103-mil. Bid). NSN chief executive Rajeev Suri explicitly notes that the deal will leverage this "incumbent position with many new customers".