They announced the deal after talks between the two companies had been widely leaked in France and they have only signed a non-binding Memorandum of Understanding on the deal while final details are hammered out between the two sides.
For Paris, France-based Alcatel, on the eve of final agreement for its $34bn merger with Lucent Technologies Inc, the agreement ends a significant weakness in its product range and it is now able to claim a strong position in UMTS behind Ericsson and Nokia/Siemens.
Nortel CEO Mike Zafirovski said the agreement is a major step on the road of reorganizing the company, and said its 10% market share in the UMTS business is at odds with his ambition to only stay in markets where its share is above 20%. Our UMTS access business lacks the scale and momentum needed to become profitable, he said.
It will however retain its UMTS core business, which organizes the network by handling calls to other carriers and carrying out the billing as this can work alongside the access business of any other supplier. Nortel will also keep GSM access and core business, together with GSM-R, GPRS and EDGE.
Together with its CDMA operation, which will now compete directly with the operation that Alcatel will get from Lucent, it believes it has a springboard to 4G technology it has been working on for some time based on MIMO (multiple-input, multiple-output) and OFDM (orthogonal frequency division multiplexing).
While each side put a different spin on the agreement, in back-to-back conference calls, both put great emphasis on 4G technology, which will offer fixed speeds of 1Gbps and 100Mbps in its mobile form and are reckoned to be two years away.
Richard Lowe, Nortel’s president of mobility and converged core networks, even said he could see some carriers making the jump from 2G to 4G, avoiding altogether a 3G network which has proved a commercial disaster for many European operators. He talked in terms of a disruptive overlay that would be far more cost effective for carriers than the business they were exiting.
Lowe said Nortel plans to lead the 4G evolution and play a key role in the mass market adoption of mobile video and multimedia services
Alcatel laid emphasis on the prospect of software defined radio, which would enable users devices to configure themselves to whatever wireless network was available, and would blur the distinctions between technologies.
With the deal, Alcatel will add Vodafone and Orange to its customer base as it will gain an additional 14 UMTS customers for a combined footprint that it said amounted to one in four UMTS operators.
It said it would significantly reinforce its presence with Tier-1 operators, especially in 3G markets such as South Korea, Italy, Spain, France, and the UK. Alcatel also said it would strengthen its position of upcoming 3G markets, such as China.
Marc Rouanne, president of Alcatel’s mobile communications operation said that combined with its strong position in GSM/EDGE and WiMAX , the acquisition would add further momentum to its broadband wireless access strategy.
When its merger with Lucent is completed, it would have a leading position in CDMA EV-DO, including a clear commitment to Rev C, and give it the most comprehensive and innovative wireless access portfolio in the industry. Together with our long-standing leadership in DSL, it makes us the partner of choice to assist our customers in their network transformation towards seamless broadband, he said.
The deal is expected to be completed by the end of the year. Alcatel shareholders will vote on the Lucent merger plan at the annual meeting on September 7.
