No 3G Pot of Gold for Western Suppliers in China

The boom in sales that telecom equipment makers are expecting from doing business in China may not materialize, according to the Wall St. Journal. With $10-billion to $30-million of 3G wireless sales poised to happen over the next four to five years, the business may go to Chinese suppliers such as ZTE and Huawei rather than Nortel, Lucent, Motorola or Ericsson. Here’s the story:

Bad news may be in store for Western telecommunications-equipment makers hoping to cash in on China’s expected $10 billion to $30 billion investment in new third-generation wireless networks over the next four to five years.
Manufacturers, including Motorola Inc., Lucent Technologies Inc., Nortel Networks Corp. and Sweden-based Telefon AB L.M. Ericsson, that have long dominated the Chinese market for wireless network equipment are faced with the possibility of losing sizable market share.
China is expected to try to give its own equipment makers a boost by launching its third-generation, or 3G, networks with its own technology standard, called TD-SCDMA, along with other standards. In the past 10 years, Chinese companies Huawei Technologies Co. and ZTE Corp. have been expanding aggressively in the global market and are ready to compete for 3G equipment contracts at home.
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Finding MIMO

Another day, another technology with lots of potential for Nortel. Today, it’s multiple input multiple output (MIMO) technology. Nortel believes it has the ability to double the number of subscribers that a cell site can support. Nortel is confident MIMO “creates a technological disruption that offers revolutionary improvement in wireless network capacity and provides a clear path to 4G Mobile Broadband” (that’s according to John Hoadley, Nortel’s chief technology officer, Mobility and Converged Core Networks. Source: iTWire)

Nortel Jumps on Wi-Fi Bandwagon

Just when you thought Nortel was only focused on Wi-Max, it comes out with an ambitious plan to tackle the Wi-Fi market as well. In a press release, the company said it is “increasing its investments” (didn’t provide details on how many dollars are involved) by creating a new municipal Wi-Fi lab, launching a new P.R. campaign for its Wi-Fi technology, and aligning itself with a handful of industry players. This group (none of whom I’ve ever heard about) includes, 121Media Inc., Accela Inc., Aptilo Networks, Blue Vector Systems, NetMotion Wireless, Pronto Networks and smarTVideo Technologies. Nortel said this alliance will allow it to offer broadband wireless services such as in-vehicle communication systems, automated meter reading, digital video surveillance, asset or fleet tracking, subscriber management and mobile television. In theory, the focus on all these wireless services sounds encouraging but how many of these partners are among the leaders in their respective service markets? It’s one thing for Nortel to get everyone excited about a technology – be it Wi-Max, Wi-Fi or metro Ethernet – it’s quite another to be a viable player. If Nortel announced an an alliance with Ottawa-based Belair Networks, which provides base stations for muni Wi-Fi networks, that would be an interesting partnership. Or if Nortel did a deal with AirIQ, which is a player in the fleet tracking market, there would be cause for enthusiasm. Nortel has good intentions, the question is whether good intentions can lead to good results.

The Habs Goes Wireless

The Bell Centre (where the Montreal Canadiens play hockey) is turning to Nortel for a wireless communications system. Everything from scanning tickets at the door and vendor sales to VoIP and Internet access for 300 journalists will travel over a high-speed wireless network powered by Nortel’s LAN and WLAN technology.

Nortel’s Wi-Max Plans

Anyone looking for some insight  into Nortel’s Wi-max strategy may be interested in an interview that chief technology officer John Roese gave to Computer World.

Another Day, Another Railway Deal

What’s with Nortel and railways contracts? It’s like the company is intent on cornering the market. Today, Nortel said TP Ferro – a Spanish and French consortium – will use Nortel’s GSM-R technology to build a communications networks for a new 44-kilometer high-speed line between Spain and France. This communications system will also include an eight-kilometer tunnel under the Pyrenees. Nortel’s other recent railways deals include GSM-R contracts in Africa and India.

Nortel’s Wi-Max Strategy

If the telecom geeks out there, Telephony Online has an interview with Peter MacKinnnon, Nortel’s new Wi-Max manager, about the company’s strategy for the market. Wi-Max has been identified as one of the key focuses for Nortel by CEO Mike Zafirovski (the others being enterprise and solutions and services).

“Nortel more than any other vendor is touting its research and development and all-around technical savvy in WiMAX above all else. MacKinnon said Nortel has seven years of solid research in orthogonal frequency division multiplexing (OFDM) and multiple input/multiple output (MIMO) smart antenna technology under its belt and the intellectual property and patents to back it up,” the article proclaims.

While Wi-Max has lots of potential and supporters (Intel, Bell Canada, Nortel, etc.), the question is whether the technology will be able to establish a viable foothold within the telecom industry and, if so, how long it will take for carriers to embrace it. It’s one thing for Nortel to identify Wi-Max as a key strategic priority but it won’t matter much if the opportunity fails to materialize. MacKinnon, by the way, used to head up Nortel’s GSM/UMTS unit and, most recently, was president of the Nortel-LG joint venture.

Chuga-Chuga Choo Choo

Maybe Nortel should carve out a competitive niche by focusing its efforts on serving the railway industry. Last month, it signed a deal with an Algerian Railway involving GSM-R technology; and today it unveiled a GSM-R contract with India’s Indian Railway to improve safety and efficiency in Uttar Pradesh – site of one of the most important and business rail arteries. The wireless network will provide service along a 751-km, 90-station line connecting the major Uttar Pradesh industrial and business centers of Ghaziabad and Mugalsarai. It will be used to connect train conductors, on-board crew, train dispatchers, station personnel and other operations groups, such as those responsible for attaching and separating rail cars at station yards. Perhaps the focus on railways is part of Nortel CEO Mike Zafirovski’s master plan. Rather than trying to be all things to all people, Nortel has perhaps suddenly realized there is a more lucrative future by focusing on a few things…such as railways. Of course, the railway market isn’t big enough to support even a slimmed down Nortel but it makes for a nice slogan: “Nortel: The World’s Railway Telecom Supplier”.
Update: Orion Securities analyst Duncan Stewart estimates the Indian Railways contract is worth $7.5-million based on a $10,000 per kilometer formula.  However, he believes the potential market to provide the railway with GSM-R technology is worth $500-million over the next five years given the railway has an astounding 108,706 kilometers of track. Stewart estimates the Chinese’s GSM-R market could also be worth $500-million over the same period of time. Maybe Nortel is onto something after all.

Now What, Nortel?

Now that Nortel has walked away from the UMTS radio access market by agreeing to sell the business to Alcatel, what is Nortel today other than $400-million to $500-million smaller in terms of sales and $200-million more profitable? In other words, what is Nortel’s strategic direction? What’s the IMS strategy? What’s the VoIP strategy? What’s the wireless strategy given Nortel is now focused on 4G, WiMax and CDMA and GSM? Since taking the helm last November, CEO Mike Zafirovski has focused on overhauling the senior management team and cutting operating expenses – two major issues. He has also talked about having at least 20% market share for a business to considerable viable, which is why the UMTS unit was sold. What investors need is a strategic road map to demonstrate where the New Nortel is going? Will the New Nortel reduce its R&D ratio to 15% from 20%; will the New Nortel make strategic acquisitions; will the New Nortel get even smaller as its drive to become profitable? BusinessWeek’s Deal Flow quoted analyst Jeff Kagan saying: “As Nortel redefines their business model I expect more of these kinds of announcements. It seems if they cannot lead and be profitable we can expect to see Nortel get out of any business.” Rich Tehrani also has some thoughts about a smaller Nortel.
Update: Some additional insight comes from Ross MacLeod, who used to be the lead developer on Nortel’s UMTS technology.

Nortel Sells UMTS Unit

Update: Nortel has agreed to sell its UMTS unit to – surprise, surprise – Alcatel for $320-million. Here’s a quote from CEO Mike Zafirovski: "Nortel is sharpening its focus on the markets in which we intend to lead. Our UMTS access business lacks the scale and momentum needed to become profitable." That’s an understatment given the UMTS business was losing an estimated $200-million a year on sales of $400-million to $500-million. Nortel held a conference call earlier today to provide an "update on advances to the execution of its business plan". It featured Zafirovski and Richard Lowe, president of mobility and converged core networks. At first glance, the selling price seems lower than the $500-million expected by many analysts. However, Nomura analyst Richard Windsor told Reuters that Nortel got a "reasonable price". Desjardins Securities analyst Paul Howbold said "while we are not surprised that Nortel has sold its UMTS business given the very difficult pricing environment, it raises serious questions about the company’s GSM business given the declining spending levels in developed markets and the lack of success in emerging markets (eg India). We also believe that without a footprint in UMTS, it is likely to complicate Nortel’s possible entry into 4G as it will not be the best positioned to transition carriers from UMTS to 4G."
Other views: Wireless Utopia says when the acquisition is completed, Alcatel will have 16% of the UMTS wireless network infrastructure market, trailing Ericsson, which has 30%. Mark Goldberg suggests with Nortel’s rivals getting bigger through consolidation, the company "will have to work harder to keep itself top of mind for its customers to call". GigaOm says he likes Mike Z.’s say-it-like-it-is approach – a common view among people who have heard Mike Z. give presentations.

Nortel Still Keen on India

Despite losing nearly 100s of millions of dollars on a wireless contract with Indian wireless carrier BSNL, Nortel is apparently still digging around for contracts in India. According to CIOL, the company is in discussions with major wireless carriers about helping them reach customers in rural areas. This is a major mandate for the Ministry of Telecommunications, which wants 500 million wireless subscribers by 2010. Sanjay Jotshi, vice president (marketing), Nortel India told CyberMedia News “we are already in talks with the major telecos on the rural connectivity, but we are not in a position to reveal the name of the companies. It is a major market for the operators as it is a unraveled market.” While the Indian market is seeing strong growth, it’s a bit of a minefield for equipment suppliers – as Nortel painfully learned – because margins are razor-thin and costs can be variable. At the same time, there’s plenty of competition, including low-cost suppliers such as Huawei. Given Nortel’s track record in India, it would be wise to proceed with caution.

Nortel, Juniper Invest in Trapeze

Juniper and Nortel have jumped into the wireless LAN market by taking part in a $30-million D round investment in Trapeze Networks. Trapeze said it plans to use money to expand geographically, improve its channel programs and bolster product development. Nortel, which originally invested in Trapeze last year, has been selling Trapeze’s WLAN switch since early last year under the WLAN 2300 series brand. Before Nortel got involved with Trapeze, it used to rebrand and sell equipment from Airespace Networks until the company was purchased by Cisco for $425 million. Trapeze CEO Jim Vogt said the latest round of funding will help the company attract new partners and add channel personnel. "We’re seeing growth, and a key part of that is recruiting and maintaining a channel," he said. The other investors in the round include Oak Investment Partners, Accel Partners, Redpoint Ventures, DAG, and Castille, who added to their previous investments in the company. Trapeze’s technology lets users roam securely anywhere in a network and over any topology, including corporate headquarters, branch offices, campuses or multi-tenant/multi-use facilities.
Update: With the D round, Trapeze has raised $102.5-million of private equity since March 2002. It raised $16-million in March 2002, $34-million in June 2003, and $22.5-million in 2005, including money from Nortel and Motorola Ventures. In terms of the Juniper-Nortel connection, Nortel chief strategy office George Riedl used to head up Juniper’s M&A activity.

Snyder: Part II

One other issue raised by Charter Equity analyst Edward Snyder in today’s Toronto Star is that Nortel’s CDMA business could be its “shining star” even though CDMA appears to be losing the standards battle against GSM. In what appears to be a strange thesis, Snyder said Alcatel-Lucent could lose CDMA market share or abandon the business if their merger goes poorly – even though it will be the dominant market leader when the merger is approved. “If Lucent and Motorola get out of CDMA, who’s going to get that share?,” he said. “Probably Nortel. Nortel could end up the king of the hill for the CDMA infrastructure business that nobody thinks is growing. It could be hugely profitable.”

Q&A With George Riedl

Network World has a Q&A with George Riedel, Nortel’s chief strategy officer who was hired away from Juniper Networks earlier this year. The interview includes his views on IP-TV, IMS, ethernet and UMTS, which has the subject of rampant speculation it will be sold soon. When Riedel was asked about Nortel’s committment to UMTS, here’s his response.

“We’re committed in getting to a decision on that. The statement of the facts are obvious: we don’t have a leading share position there. We have great products but we don’t have a leading share position. Can we make that great product into a leading share position or not? That’s a discussion we’re having real-time. Because if you can’t then what are you going to do about it? We’re actually much more excited, frankly, about 4G as opposed to UMTS. I think if you look at the practical experience of the economics of 3G, one would have to say we wound the clock back five years and this is what we got, would we be happy with all of the investments? I think by and large, no. We actually see an opportunity to continue to invest in a set of technologies around the OFDM/MIMO enabling technologies, which could get manifested in WiMAX Rev C, or an LTE solution for the UMTS (market). And we think operators, both for the services and frankly for the backhaul benefits of some of those technologies, you’re going to see a lot of value in those technologies. Our challenge is to get the time to market right in order to exploit that.“

Alcatel-Nortel Talks: On or Off?

There has been all kinds of speculation Alcatel is interesting in buying Nortel’s UMTS assets. But is a potential deal off the table now that Alcatel has acquired Fujitsu’s 34% stake in joint venture called Evolium that specializes in UMTS technology?