Ovum: Alcatel boosts 3G footprint

Company's intention to acquire Nortel's UMTS assets is seen as a move to fend off fiercely-competitive Chinese telco player Huawei, in an overcrowded market, the analyst says.

SINGAPORE--Alcatel's impending purchase of Nortel's 3G wireless infrastructure business will help to pit itself better against Western counterparts and China's Huawei.

Paris-based Ovum analyst Julien Grivolas told ZDNet Asia that if the acquisition goes through, Alcatel will be in a better position to compete against Ericsson, Nokia-Siemens and Huawei in a highly-competitive UMTS (Universal Mobile Telecommunications System) markets.

Behind the two Western vendors, Huawei is the main challenger to Alcatel as the Chinese vendor has been winning network infrastructure contracts with European 3G operators including Vodafone in Spain and Czech Republic, as well as KPN in The Netherlands.

Alcatel said last week that it plans to buy some of Nortel Networks' wireless access infrastructure equipment for US$320 million. The companies are expecting to complete the transaction in the fourth quarter of this year.

Grivolas said: "Ericsson and Nokia are the main leaders in the UMTS market. If Alcatel combines its existing customer base with those from Lucent and Nortel, it would be able to benefit from economies of scale.

"That would also put Alcatel in a better position to compete with Huawei," he said.

Moreover, Grivolas noted that Nortel's products are well-known for their good performance, and that should help Alcatel compete better against its rivals.

Other industry observers have also pointed out that the deal would strengthen Alcatel's market position in Asia, particularly in China and South Korea, where the company already enjoys a strong position in the local second-generation network equipment markets.

Grivolas, however, said since the Chinese government has not issued 3G licenses, it is premature to discuss the impact of the takeover in China.

"Although Alcatel is a significant player in the Chinese market through its joint venture with Shanghai Bell, the impact of the deal is less important, because the UMTS spectrum has not been allocated."

In 2002, Alcatel started a joint venture with China's Shanghai Bell, the country's first foreign-invested telecoms company. Called Alcatel Shanghai Bell, the joint-venture company delivers products in areas such as fixed-line and mobile networking, broadband access, intelligent optical networking, multimedia and network applications.

In South Korea, Alcatel currently does not have a direct presence in the local market, Grivolas said. But that may change with the acquisition of Nortel's UMTS assets.

"Alcatel does not provide any mobile equipment to Korean telecoms operators, such as SK Telecom and Freetel," Grivolas said. However, Nortel last year established a joint venture with 3G equipment supplier, LG Electronics. This meant that Alcatel could now have direct access to the South Korean 3G market, he noted.

Alcatel's latest buying spree is not surprising, given the pressure on telecoms vendors to compete effectively, in a global UMTS market teeming with competitors.

Grivolas said: "The 3G market is overcrowded with too many players, and with decreasing market share. To be innovative, you need to spend lots of money in R&D (research and development), and to sell at lower prices.

"If you are too small a player, it's going to be difficult."

Marrying once too many?
With the impending marriage between Alcatel and Nortel's UMTS business, there is also a lingering question over the future of Evolium, Alcatel's joint venture with Fujitsu, in which the French vendor holds a 66 percent stake, Grivolas said.

In 2000, Alcatel and Fujitsu inked an agreement to set up Evolium, a company that develops future-generation mobile communications network systems. "If Alcatel completely divests itself of Evolium, Fujitsu could lose its international go-to-market channel in UMTS infrastructure," he said.

More importantly, dealing with technology integration is one common aftermath of any merger effort. Grivolas said very little has been communicated to analysts and industry observers in that regard. "If the Lucent merger is completed, and the acquisition of Nortel's assets is effected, Alcatel would have to deal with three different product lines."

"They would have to realign their products, or create some solution that will enable very flexible interoperability among the different product lines," he added.

A spokesperson from Alcatel Singapore, however, said: "We see a clear path [in the] integration of solutions." She added that the company will develop software-based products to facilitate an "unusually smooth migration path to a single integrated product line".