Nortel Acquisition and Ericsson Gameplan

Bankruptcy courts in Canada and the United States unanimously approved Nortel Networks Corp.'s request to sell its main wireless business to Swedish rival LM Ericsson.

The US$1.13-billion sale will deliver to the Swedish telecom firm Toronto-based Nortel's CDMA, or code division multiple-access technology, an older system, but one still widely deployed by mobile-phone carriers. CDMA is expected to continue to be in use in developing markets like Asia for the next several years.

However, the most lucrative portion of the sale, analysts say, comes in Nortel's long-term-evolution technology, or LTE. Nortel said it has spent as much as US$200-million annually developing the next-generation wireless gear that is expected to become the global standard in the future.

"Nortel still owns all of the LTE patents," Nortel counsel Derrick Tay said in court. Mr. Tay said Nortel owned some 5,500 patents. Of those, 600 were being "transferred" to Ericsson while none of the LTE intellectual property was being sold. Instead, Nortel will be licensing them to Ericsson, he said.

I am curious as to what does it mean by licensing the LTE patents considering the fact that Nortel is bankrupt. If the license period is something like say 99 years then it shouldnt really matter for Ericsson. I am not sure just making a guess.

Lynnette Luna, Fierce Wireless has a very interesting take on this:

Ericsson and Nokia, once the staunchest opponents of CDMA technology, found themselves in a bidding war for bankrupt Nortel's CDMA assets. The war ended on Friday with Ericsson on top and willing to pay $1.13 billion for most of Nortel's CDMA and LTE assets.

Ericsson had tried to make a go of it in the North American CDMA market following its purchase of Qualcomm's infrastructure business that was part of its IPR settlement with Qualcomm in 1999. It subsequently ended the business after failing to penetrate this market since Qualcomm didn't have much of an installed base. Nokia, now Nokia Siemens Networks, never tried to play in the North American CDMA market, and thus has a weak North American market share overall at around 5.5 percent.

However, Ericsson this year has made significant headway into the U.S. market, scoring a big LTE deal with Verizon--at the expense of Nortel--and winning a $5 billion CDMA outsourcing agreement with Sprint Nextel. Did it really need to spend $1.13 billion to gain more market share?

The answer is yes. Despite winning these two U.S. deals, the biggest criticism of Ericsson has been its lack of CDMA expertise--whether managing a network or migrating CDMA operators to LTE. Now it has both. Given the fact that Nortel's CDMA gear is in a significant portion of CDMA networks operating around the world, Ericsson now has a great story to tell. It needs that CDMA expertise to migrate customers from CDMA to LTE--especially since voice traffic will continue to run over CDMA networks while data gets routed over LTE for the foreseeable future.

For Ericsson, it's no longer about getting a foot in the door. It's about crushing the competition. Ericsson is looking forward to a future when both WCDMA and CDMA operators look to it to help them migrate to LTE. But as Ericsson CEO Carl-Henric Svanberg said on the conference call this morning, "CDMA will be the first markets to migrate to LTE so therefore it is important to us."

Meanwhile, a deal like this could be the nail in the coffin for some vendors. It's certainly not good news for NSN, which would have boosted its North American market share to 30 percent had it won the assets. And Chinese vendors ZTE and Huawei have been trying hard to make inroads into the North American market through CDMA. This deal certainly hampers those efforts.

And Alcatel-Lucent just saw its major competitor become significantly stronger. Alcatel-Lucent was the vendor with the better CDMA-to-LTE conversion story while Nortel was stuck in bankruptcy limbo.

Of course, it's not just about getting a stronger foothold in LTE. Nortel's CDMA business is a money-maker, and Ericsson executives on the call this morning said they believe the unit will continue to be profitable for the next few years as operators keep investing in their CDMA networks. There are actually operators looking to deploy CDMA EV-DO Rev. B. And don't forget the services market, a major growth engine for Ericsson. Ericsson said the deal will be earnings per share accretive within the first year.

Bankrupt Nortel pays hefty bonuses to executives

Nortel Networks, as it continues to wade through bankruptcy protection, posted a $2.14 billion loss in the fourth quarter and a $5.8 billion loss for all of 2008.

The above news obviously paints picture where the restructuring and job losses will be normal activity at Nortel. However the news which I got to read today and which is not at all normal is that Nortel is going to pay $7.3 million as a bonuses to it’s executives.

This is quite extraordinary for me specially when employees at the bankrupt company were forced to decide between severance pay and their pension plans.

An Ontario Superior Court Judge Geoffrey Morawetz has allowed Nortel Networks Corp. to pay these bonuses to some Canadian senior executives as part of an incentive plan to keep them with the company to drive reorganization as it tries to emerge from bankruptcy protection.Earlier this month, a U.S. court overseeing Nortel's bankruptcy allowed the company to pay $22 million in bonuses the company said it needed to keep 880 employees worldwide.

All the amounts mentioned above do not include any payments to CEO Mike Zafirovski. This becomes quite apparent that whatever compensation Zafirovski receives will come from a separate pot.

It’s reported that under the terms of the key executive incentive plan, the top executives could get cash incentives of 100 per cent to 183 per cent of base salaries where the salaries are thought to in the $1-million U.S. annual range.

These new payments in terms of bonuses has not gone down well and there are vociferous protests specially from a lawyer representing a group of Nortel workers who have been fired but have not received severance pay.

For me this situation is like there is a guy who refuses to pay his debts but then spends £10,000 for a car. These are tough times and it should apply fairly to everybody.

Nortel has offered to give fired employees early access to pension plans and provide medical benefits to retirees under the condition that they drop their claims for severance pay in bankruptcy court.

The telecom equipment giant filed for bankruptcy protection in mid-January and has until May to restructure. Since filing the bankruptcy, Nortel’s revenue declined 15 percent year-over-year in the fourth quarter, down to $2.72 billion.

As a part of restructuring process Nortel may offload some of its major units, including its wireless equipment business, instead of trying to remain a whole company.

Nortel bankruptcy creates worry for 2010 and 2012 Olympics

Everybody by now knows what happened to Nortel. On 13th January Canada's Nortel Networks filed for bankruptcy in Delaware under Chapter 11 and Chapter 15 guidelines.
Nortel has been struggling financially from the past couple of years and was cutting jobs at regular intervals. Toward the end of the year, the Toronto-based company was warned of a possible de-listing from the New York Stock Exchange.

The Chapter 15 filing enables a company to seek a U.S. bankruptcy court's recognition of a foreign bankruptcy case as the main or controlling proceeding.

There might be some potential buyers for Nortel but let’s see what happens in the coming days.

Nortel Networks at the moment is of course the topic of much conversation and speculation. In my view following are the key issues which Nortel has to deal with in the immediate future:

• It might loose some of it major partners, like Microsoft and how does the bankruptcy will affect its smaller partners, like Airvana,


• How long it can hold onto skilled talent in places like Ottawa, Ontario, and Richardson, Tex, and,


• Where the company should continue to focus its product energies as its fate plays out.

These events have affected many in the industry but one of them in particular is the organizers for the 2010 Vancouver Winter Olympics and the 2012 London Olympics. Remember Nortel is the official sponsor for these two Olympic events and any trouble in Nortel is to stimulate significant trouble for these events.

Although Nortel Networks says, at least for now and before the bankruptcy court gets involved, that it remains committed as a sponsor and official network infrastructure provider to the 2010 Vancouver Winter Olympics and the 2012 London Olympics.

Back in July, Nortel signed up as a Tier One Olympic sponsor, and, to support the London Olympics. In addition to million of dollars in cash, Nortel also committed to provide the network infrastructure for communications in cooperation with British Telecom for the 2012 Olympics.
At the moment Nortel is giving every signs to reassure its commitment to the games as a 'tier-one' local sponsor and official network infrastructure provider for the London games.
Under the London sponsorship deal, Nortel is to supply network infrastructure, including secure networks, local wireless networks, call center and fixed landline infrastructure to support more than 205 international sporting organizations, 20,000 members of worldwide media, 9 million spectators, and "billions" of television viewers.

This looks quite staggering so just imagine the scenario where Nortel can’t fulfill its commitment.
Just like it has done with the 2012 organizing committee, Nortel is assuring the Vancouver Olympic organizing committee that it will stand behind its commitment to the 2010 Winter Games.

It does makes sense that Nortel fulfill it’s commitment I think it would be able to do so as much of Nortel's support has already been delivered and is expected to be in place by May.

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.

Nortel bets on LTE as prediction rises to 32 million by 2013

In a bid to gain head start in the development of technology conforming to LTE (Long Term Evolution) technology standards across the globe, Nortel has withdrawn funds from its in-house research & development for WiMax and diverted the funds to development of LTE-based solutions. The R&D activities for WiMax will be handled by Nortel’s Joint Venture for WiMax with Israel-based Alvarion.

The Globe and Mail newspaper has an interesting analysis of Nortel's revenue model and how moving to LTE may help in long term.

Analysts praised the move, in part because some of North America's largest phone companies are leaning toward LTE.

Richard Lowe, president of Nortel's carrier networks division, says the company is the only one in the industry conducting live trials of LTE.

The first LTE products are expected to be ready for sale in 2010, and the market is estimated to be worth $400-million in the first year and $1.6-billion in 2011.

Even if Nortel is first to get LTE to market, the technology is unlikely to match CDMA for profitability. Mr. Notter describes Nortel's CDMA business as a "gravy train," thanks to what has effectively been a duopoly between Nortel and French telecom giant Alcatel-Lucent.

One reason the transition to LTE will hurt Nortel is because the company will be competing against more vendors, including Telefon AB LM Ericsson of Sweden, Finnish-German joint venture Nokia-Siemens Networks and China's Huawei Technologies Co. Ltd., Mr. Notter said.

Nortel's own financial forecasts indicate the juicy 24-per-cent operating margin in wireless will slide to between 13 per cent and 16 per cent by 2011 as annual growth falls 3 per cent on a compounded annual basis.

Nortel vows to offset these declines by offering new software and services to customers on networks capable of handling greater amounts of data in new and faster ways.

One such service is unified communications, which Nortel chief technology officer John Roese defines broadly as multimedia features that allow people to interact and collaborate from any device and any location.

In terms of intelligent network services, 61 per cent of companies said they were interested in buying unified communications, which they considered to include integrated voice, e-mail, instant messaging, Web and video-conferencing functions.

In another news, Long Term Evolution (LTE), the 4G technology of choice for many major wireless carriers, won’t be commercially launched until at least 2010, but could see upwards of 32 million subscribers by 2013, according to a new study by ABI Research.

Asia-Pacific countries will account for much of LTE’s early growth, according to ABI, given that China Mobile, and Japan’s NTT Docomo and KDDI are expected to make use of the technology.

“ABI Research anticipates about 12 million Asia-Pacific LTE network subscribers in 2013,” said senior ABI analyst, Nadine Manjaro. “The remainder will be split about 60-40% between Western Europe and North America,” where Vodafone and Verizon Wireless (respectively) have announced plans to adopt LTE.

Meanwhile in Korea, KTF announced that its working on LTE with Samsung and ETRI. LG has also been working on LTE from the start.

Nortel's 4G cocktail at MWC 08

Nortel is busy demo-ing 4G technologies at the Mobile World Congress (MWC ... formerly 3GSM) 2008.

"Today, at home or at the office, your network is just there - putting the world at your fingertips. But if you are out on the move, whether it be for meetings, running errands, or traveling around the world, your communications experience becomes very, very complicated," said Scott Wickware, vice president of marketing and strategy for Carrier Networks, Nortel. "You can e-mail, but you can't send or open certain files. You can surf the net, but you have to wait ages for pages to load and forget about watching a video. Your other option is to search out a WiFi hot spot where you'll then have to pay yet another connection fee. When you go mobile, all of a sudden you are forced to pay attention to the network and you shouldn't have to."
The demand for better connections and the need for the experience to be simple are what drive the next level of innovation in our networks. For wireless networks, that next level of innovation is 4G mobile broadband, which includes LTE and WiMAX. 4G can extend the quality experience that users get from their fixed connections into the mobile world. Nortel has all the elements needed to bring carriers successfully into the 4G world: innovation in WiMAX and LTE, a strong ecosystem, all IP-core, and a deep understanding of what consumer and business users are looking for from their wireless experience.

Nortel's 4G Mobile Broadband website says:

4G delivers true mobile broadband for the masses with a superior user experience. Nortel is boosting the adoption of mobile multimedia and the delivery of a true mobile broadband experience through our leadership in 4G-enabled technologies (WiMAX, LTE (Long Term Evolution), UMB (Ultra Mobile Broadband), and IMS (IP Multimedia Subsystem). 4G mobile broadband provides improved performance, lower total cost of ownership and enables a new era of personalized services. 4G networks are IP-based and flatter with fewer nodes to manage. The benefits are significant and can make 4G mobile broadband a truly disruptive and game-changing technology.

If Nortel calls this 4G then this is 4G ;)