A year ago, it would have been unthinkable. Two giants, Nokia Siemens Networks and Ericsson (ERIC) bickering over who could get the wireless assets of Nortel Networks, a struggling provider of telecom equipment.
But this past weekend, that is exactly what happened. Nortel Network's wireless crown jewels were auctioned off on Saturday effectively pitting Finland's Nokia Siemens Networks against Sweden's Ericsson for the North American market. Nortel, the Canadian telecom equipment provider, filed for bankruptcy earlier this month. At stake was the future of the next generation of wireless technology -- in particular, a fourth-generation technology called Long Term Evolution (LTE) -- which can transfer data at hundreds of megabits per second.
The bidding was started by Nokia Siemens Network at $650 million. It was followed by a slightly higher bid by MatlinPatterson Global Advisers, one of Nortel's largest bondholders. Research In Motion (RIMM), the Canadian maker of the BlackBerry line, made an unofficial bid of $1.1 billion for Nortel's assets but said that its bid was blocked by Nortel since both companies are Canadian.
In the end, Sweden's Ericsson prevailed with a bid of $1.13 billion. For that price, Ericsson will now get access to Nortel's CDMA technology – the basis for the kind of networks operated by Verizon Wireless and Sprint – and a group of 400 researchers working on LTE.
The outcome is bad news for Nokia Siemens. The company has been desperately trying to increase its market share in the U.S. By acquiring this business, the company would have had a leg-up in CDMA technology as well as better prospects for fourth generation technology. If the deal had gone through it would have given the company a 30 percent market share in North America.
For Ericsson, the LTE assets don't do much to bolster the company's abilities. It is already the biggest holder of intellectual property for LTE and has already been winning deals from operators such as Verizon (VZ), TeliaSonera and NTT DoCoMo (DCM). But by winning the auction, Ericsson has broadened the moat between itself and its competitors – if not by moving itself forward, by holding its competitors back. The deal gives it expertise in CDMA technology - an area in which it was lacking.
Ericsson's win has another wrinkle to it. Wireless carrier Sprint (S) recently announced a $5 billion contract to outsource its network to Ericsson. At the same time, Sprint doggedly says that it will not build an LTE wireless network but instead deploy WiMax technology for its next generation network. LTE, though, is widely seen as being a better, faster and more cost effective technology. With Ericsson's LTE win, it now seems even more likely that Sprint will eventually buckle and opt out of WiMax.
In the meantime, Research In Motion is not giving up and is calling for the Canadian government to intervene and there is still a possibility, though remote, that it could block Ericsson's purchase. A joint hearing is scheduled for Tuesday in Ontario and Delaware and RIM could object then – at least in Ontario since the deadline for objections has passed in the U.S.
If all goes through as planned, Ericsson will finance the deal itself and not issue any debt. So the company expects that the purchase will add to earnings within a year. Ericsson's chief executive Carl-Henric Svanberg also said that it will offer jobs to at least 2,500 Nortel employees.
Ericsson's acquisition is still subject to approval by bankruptcy courts and regulatory authorities in Canada and the U.S.
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