Tuesday 7 October 2008

Nortel 4G: Cracks in the wall

Sometime in distant past, it seemed that Nortel had everything. They were big in UMTS and HSPA, had a share of CDMA pie in Americas, had loads of patents in OFDM technology which is the basis of most Next Generation technologies, had strategic partnership and very much into R&D on WiMAX and LTE and at the same time also working on 4G Optical technologies.

Then they got rid of 3G and HSPA infrastructure by selling it to Alcatel (now Alcatel-Lucent) and started focussing on 4G only. Then their CDMA business started to suffer because people in Americas are moving onto GSM and CDMA growth opportunities are limited. Recently Nortel has again been in news because it wants to sell its Metro Ethernet Networks (MEN) business.

The MEN division includes Nortel's optical business and its carrier Ethernet work, including its Provider Backbone Transport (PBT) technology. That's big news, but so is the lowered forecast. After predicting single-digit sales growth this year, Nortel is now saying its 2008 revenues will be 2 to 4 percent less than the $10.95 billion it reported in 2007.

According to a report in Unstrung, Nortel isn't so keen on developing LTE either, despite repeated claims that it was well positioned to be a major player in that market. When asked during analyst conference call about what actions Nortel might take regarding its 4G developments, CEO Mike Zafirovski said the company is looking for "opportunities to de-risk" its investment. "Future consolidation is necessary in wireless. We're exploring options for 4G that will be best" for Nortel, its customers, and the industry, said the CEO, unhelpfully.

What might those options be? Zafirovski said that "what we did with UMTS and Wimax" are examples of what might happen. Nortel's WiMax strategy is now tied up in the Alvarion relationship, while it sold its 3G UMTS infrastructure business to Alcatel in late 2006.

Analysts, still parsing Nortel's words, see some value in Nortel getting help from partners. “Ever since Nortel exited the UMTS market it’s been next to impossible to see how investing in their own LTE base station would result in anything but huge losses," says Patrick Donegan, Heavy Reading's senior wireless analyst. "Going down the same OEM path as they have with WiMax would at least ensure that those huge losses won’t be suffered. Whether they can go beyond that and carve out a position in LTE which is actually profitable with an OEM partner is unclear but certainly plausible.”

But, just like with carrier Ethernet and optical, the market is too tough for Zafirovski to believe Nortel can be a leading and profitable player. "With eight, nine, ten players competing, industry dynamics require various forms of cooperation," he added.

Despite all the predictions and Hype, 4G or LTE is far away. WiMAX will be rolled out but in chunks and there are already too many people in WiMAX. What Nortel needs and is looking for is some significant partner or perhaps a merger (takeover?). In the meantime it maybe some time before its investors hears any good news from Nortel.

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