Global Insight Perspective | |
Significance | Alcatel is to acquire Nortel's 3G UMTS unit for US$320 million. |
Implications | Pursuing a takeover with Nortel while its merger with Lucent is yet to be resolved could weigh Alcatel down. If it manages to pull off the deals by the year-end, the company will boost its share in the telecoms equipment market. |
Outlook | A combined Alcatel-Lucent-Nortel entity will become the market leader for broadband products and technologies such as DSL, WiMAX, CDMA 2000, and UMTS. |
French vendor Alcatel has signed a non-binding MoU to acquire Nortel's 3G UMTS radio access business and related assets. In a statement, Alcatel said that the deal was part of its strategy to further strengthen its UMTS market position in line with its global leadership in broadband access. "With this deal, Alcatel should become one of the world's largest suppliers of UMTS radio access solutions," the company said. The deal would "further reinforce its technology edge at a time when the UMTS market is expanding rapidly".
An Alcatel-Nortel tie-up would be the latest deal in a trend towards consolidation in the communication equipment market, following the Ericsson/Marconi, Cisco/Scientific-Atlanta, Lucent/Riverstone, and Nokia/Siemens deals, and the pending Alcatel/Lucent agreement. The deal is also akin to the Nokia/Siemens agreement, where only one Siemens unit is involved. Alcatel said that a successful acquisition would give it an additional 14 UMTS customers worldwide and a combined global footprint of 25% of all UMTS operators.
"The proposed acquisition would enhance Alcatel's industry-leading mobile radio expertise and product portfolio with technology and products that enjoy strong recognition among leading operators such as the Vodafone and Orange groups," the company said in a statement (see World: 19 June 2006: Nokia, Siemens in Multi-Billion-Dollar Networks Unit Merger, 24 March 2006: Alcatel and Lucent Confirm Merger Talks, 22 March 2006: Lucent Wins Bidding for Riverstone, 28 February 2006: Cisco Systems Closes Scientific-Atlanta Deal for US$6.9 bil.and 25 October 2005: Ericsson Agrees to Acquire Marconi).
Alcatel went on to state that a combined Alcatel-Nortel unit would have a significant presence among tier-one operators, especially in world-leading 3G markets such as South Korea, Italy, Spain, France, and the United Kingdom. The deal would also bolster the companies’ GSM/EDGE business in upcoming 3G markets such as China. Commenting on the deal, Marc Rouanne, president of Alcatel's mobile communications activities, said that a combined Alcatel-Nortel-Lucent, pending the resolution of Alcatel's merger deal with Lucent, would shoot to third place in the UMTS and HSDPA markets (with Ericsson and Nokia holding the top two spots).
Outlook and Implications
- Two Deals at a Time: Although a takeover of Nortel has long been expected, Alcatel's involvement at this point means the latter has a huge task in closing two major deals before the year-end. The merger deal with Lucent continues to wrangle on, and there is as yet no guarantee that it will be completed. Last month, a French advisory body opposed the deal, advising shareholders who are due to decide on the deal next week to vote against it. Taking on Nortel, another North American firm would require further North American regulatory scrutiny—with the concomitant quibbles about antitrust charges and national security. Although Alcatel insists it has involved, and will continue to involve Lucent in the conclusion and implementation of the Nortel transaction in order to achieve an efficient fit within the combined company, digesting two deals at a time may prove something of a mouthful (see World: 29 August 2006: French Advisory Body Urges Shareholders to Block Alcatel-Lucent Merger, 11 July 2006: Alcatel and Lucent Announce Update on Merger Plans).
- Broadband Dominance: A successful transaction with Lucent and Nortel would significantly boost Alcatel's product portfolio, making it the leading global supplier of broadband infrastructure. Already, the company is a leading supplier of DSL infrastructure for fixed broadband services, and a leading player in the development of WiMAX broadband technology. A merger with Lucent would boost its CDMA portfolio, putting it in the spotlight as a leading player in the developments of CDMA 2000 EV-DO technologies including Revision C (Rev. C). Alcatel added that the deal would give it the scale to lead innovation in HSDPA and 3G long-term evolution (3G LTE), fully leveraging its expertise in multi-standard radio solutions and software-defined radio (SDR) technology. A combined Alcatel-Lucent-Nortel is suitably placed to be a leader in the development and roll-out of seamless broadband services.