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Summary

After at least a year of rumors, on April 15, 2015, Nokia finally announced it was going to acquire its rival Alcatel-Lucent. Current expectation has the deal finalizing in 1H16. The new entity will be known as Nokia Corporation, with headquarters in Finland. Successfully executing this acquisition will be challenging, but could also lead to a much different telecoms gear market.

Analysis of this acquisition requires a look at the future, as well as past failures

Nokia and Alcatel-Lucent both provide very real examples of mergers and acquisitions that have gone wrong. In fact, one can easily argue if Nokia's past hookup with Siemens and Alcatel's merger with Lucent had gone better, this deal would not be taking place. However, Nokia's 2011 acquisition of Motorola's network division does indicate the company learned its lesson with Siemens and is much better now at executing on acquisitions. Still, both companies must overcome important hurdles for this current acquisition to work. There is significant portfolio overlap between the two vendors, especially in the area of radio access networks. Painful and difficult decisions will have to be made on how to reshape the newly created company. (For more information on this, please refer to "Would a merger between Nokia and Alcatel-Lucent be foresight or folly?" January 2015.) But, assuming proper management of this acquisition, it can lead to some major changes in the vendor landscape for telecoms gear.

  • Nokia will have scale to compete. Nokia management has been talking for some time about how they thought there was only room for three major RAN vendors. This acquisition makes sure Nokia is one of those three. It strengthens Nokia in the area of small cells/HetNet and SDN/NFV, and ensures Nokia has a significant RAN position with all four major US mobile operators. If 5G turns out to be more of an evolution of 4G than a total network refresh, a vendor's current LTE customer base will be a significant contributor to 5G success.

  • Expect more acquisitions. The new Nokia could lead to other acquisitions as the vendor's remaining competitors buttress their own portfolios. Remaining RAN vendors might start eyeing SpiderCloud as a possible acquisition to strengthen their small cell position against the new Nokia.

  • Ericsson's number-one market share position not assured. The new Nokia would become a very close and strong number two to Ericsson in the RAN market. And, unlike the current number-two Huawei, Nokia doesn't have problems selling into the US.

  • New Nokia will make things more difficult for ZTE and Samsung. A strengthened Nokia will make it tougher for ZTE and Samsung to grow their mobile gear businesses outside of their domestic markets. A big part of being a RAN vendor is services. Profitable services require a large customer base to share the cost of those services to make them profitable. This is a clear advantage the new Nokia will have over ZTE and Samsung.

This acquisition is far from completed. Until then, Ericsson, Huawei, Samsung, and ZTE should take advantage of the market uncertainty created by the proposed transaction to try to grab share from both Nokia and Alcatel-Lucent.

Appendix

Further reading

"Would a merger between Nokia and Alcatel-Lucent be foresight or folly?" TE0006-000999 (January 2015)

Author

Daryl Schoolar, Principal Analyst, Intelligent Networks

daryl.schoolar@ovum.com

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