How Will Alcatel Lucent Takeover Strengthen Nokia’s Networking Ambitions?

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NEWS ANALYSIS: Experts give their view on the challenges the new Nokia Alcatel-Lucent will face in networking market

Earlier this week, Nokia agreed a long-speculated £11.2 billion deal to takeover Alcatel Lucent.

The deal marks the latest evolution of Nokia and the latest stage of consolidation in the network equipment market. But will the new Nokia be able to better compete with the likes of Ericsson and Huawei and what challenges will the combined firm face?

We asked some industry experts what they thought about Nokia placing all of its eggs in one networking basket.

Sheridan Nye, senior analyst for ICT, Europe, at Frost & Sullivan

Nokia Rajeev Suri 1“This long-awaited move is primarily a defensive one. Neither Nokia nor Alcatel-Lucent alone could realistically take significant share from market-leader Ericsson, or fight off aggressive competition from Huawei. The merger creates a competitor that is stronger than the sum of its two parts. The timing is also good as both companies have completed the worst of their cost cutting programmes and Nokia has extracted itself from the lacklustre Nokia Siemens Networks (NSN) joint venture.

“But the challenge is to convince employees and shareholders that cultural integration will be more effective than at either Alcatel-Lucent or NSN, both of which suffered from fragmented governance of merged companies with strong cultures and histories.

“Almost exactly 10 years ago, French national champion Alcatel merged with Lucent, AT&T’s former technology arm, but the deal largely failed to realise its potential. Nonetheless the company’s customer base in North America now represents its most valuable asset.

“In effect, this ‘merger’ could be seen as a takeover as the new Nokia Corp will be headquartered in Finland and Nokia’s Rajeev Suri will continue as CEO. But implementation will take time and money and effective management will determine whether it succeeds or fails. Nokia also needs to convince competition regulators – notably in the United States and China – to approve the deal, a process that could take several months.

“The passing of the Alcatel and Lucent names into history will be mourned by some, but ultimately it is more important to enter the next phase of telecom transformation under a single, unified banner.”

Mark Newman, chief research officer, Ovum

“When you consider the strengths and weaknesses of Alcatel-Lucent and Nokia and their product portfolios, a merger of the two businesses seems logical. Nokia is a mobile-only equipment vendor, while Alcatel-Lucent’s strengths are in the fixed network business (especially core network and IP routing). It has long-struggled in the wireless business, and its attempts to become a leading player in LTE have failed. Alcatel-Lucent has also been active in SDN/NFV with CloudBand and Nuage and aggressive with small cells – areas where Nokia is perceived to be lagging behind competition.

“But there are also risks. A full merger would plunge both businesses back into a period of introspection and restructuring. It would create significant duplication in areas such as mobile broadband and small cells. Maintaining two different product portfolios and servicing existing customers would counteract the benefits of increased scale.

“Rationalizing the two product lines would be difficult, and dealing with French labour laws could limit what Nokia would want to do.

“For both Nokia and Alcatel-Lucent, the big challenge facing their businesses is the shift in value from hardware to software and the convergence of IT and telecoms technology. Both companies are still firmly anchored in network hardware (although Alcatel-Lucent has, admittedly, been a pioneer in SDN and NFV – the technologies and network architectures that are most important to the future “virtualization” of telecoms networks). A merger of the two businesses will give them more scale but it will not create the software culture to compete in the IT-centric future.”

“Nokia’s business has turned around over the last two years as a result of the simplification of its business and its focus on mobile broadband. However, the wave of fixed-mobile consolidation that is sweeping across the globe and the transition to software-centric networks is transforming the telecoms network landscape and what will be required of the technology supplier of the future.”

Analysys Mason

Nokia Phone logo“Nokia’s acquisition of Alcatel-Lucent gives the company a much stronger share of the communications service provider infrastructure, software and services market. However, for success, Nokia must do a complete acquisition and be able to perform a portfolio rationalisation very fast, or it can suffer the worst pains of its former mergers.

“Nokia Networks gets access to key Tier1 customers in US, which it was lacking, as well as to customers in China through the subsidiary Alcatel-Lucent Shanghai Bell. Asia and Africa are markets that are still in very early stages of 4G planning and these markets present opportunities for Nokia Networks to take market share away from its closest competitors, Ericsson and Huawei Technologies.

“Nokia Networks acquires a key product-focused portfolio from Alcatel-Lucent, including IP transport network, optical technology, specific network analytics and wireless technology assets which should enable the combined company to compete more effectively with Ericsson and Huawei as more operators, particularly, large Tier1 operators, move towards Fixed Mobile Convergence.

“Fixed broadband is a resurgent area now and in the future, with related connected home and FMC opportunities. Hence, having a strong position in this area will be key for Nokia Networks to position itself at the top, ahead of its closest competitors.

“The acquisition of Alcatel-Lucent also gives Nokia an OSS portfolio and Nuage Networks that provides it with WAN-SDN solutions and access to a broader range of customers. But this acquisition does not provide it with products to address the BSS space.

“The combined company will have a well-rounded portfolio that can cater to the requirements of CSPs engaged in optimising and monetising their networks and in moving towards virtualisation and the digital economy in the long-term. However the manner in which the Alcatel-Lucent assets are integrated will be key to success in this area.”

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