Ericsson CEO Carl-Henric SvanbergSCANPIX SWEDEN
Telefon AB LM Ericsson's successful bid for Nortel's wireless assets gives it a new advantage in the North American mobile marketplace, locking out a key competitor as carriers begin the transition to more data-intensive technology.
Ericsson's $1.1-billion (U.S.) bid beat out offers from Nokia Siemens Networks and MatlinPatterson Global Advisers, a New York-based private equity fund, in an auction that ended early Saturday morning.
BlackBerry maker Research In Motion Ltd. also said it was interested in Nortel's assets and made an unofficial offer of $1.1-billion for the auctioned assets plus other wireless patents, but did not participate in the proceedings, arguing its bid had been blocked by Nortel. Yesterday, RIM said it hadn't given up and called on Ottawa to intervene.
"Now that the auction is completed, the government has the authority and responsibility to get involved to protect vital Canadian interests," the company said in a statement yesterday.
In outbidding Nokia Siemens for the right to license Nortel's fourth-generation , Ericsson has consolidated gains made when it won a major contract to supply Verizon Communications Inc. with 4G technology. The company plans to roll out LTE service in 20 to 30 centres in 2010.
LTE, which has yet to be introduced commercially, promises mobile download speeds into the hundreds of megabits per second.
The fastest Canadian home Internet access currently available is Bell's 16 Mbps, while Rogers promises a 50 Mbps service in August.
Nokia Siemens, which kicked off the bidding contest on June 19 with an offer of $650-million, has been losing market share to Ericsson. Ericsson's networks unit increased sales by 4 per cent in the last quarter, while Nokia Siemens dropped by 21 per cent.
"Every vendor has been developing in isolation from one another. Ericsson's move gives it a larger slice of the patent pie," technology analyst Carmi Levy said yesterday. "Less of its potential revenue will be siphoned off in paying licensing fees to others."
Ericsson CEO Carl-Henric Svanberg said the acquisition would add 2,500 employees to the firm, about 400 of whom will be focused on LTE research and development. Some jobs are expected to be cut due to the transaction, but both companies have said they want to preserve as much employment as possible.
Under the deal, Ericsson will get CDMA, or code division multiple access, contracts with North American operators, including with Nortel's former parent company Bell Canada, as well as Verizon, Sprint, U.S. Cellular, and Leap. Ericsson also gets LTE assets and certain patents and patent licences relating to CDMA and LTE.
CDMA is a rival standard to the dominant cellular standard GSM, or global system for mobile. LTE, or long-term evolution, is a next-generation wireless network technology that promises to be much faster and allows cellphone operators to stream video and other advanced services on their devices.
"Nortel has clients on the board who have plans to migrate from CDMA to over time. Nortel was ahead of anyone else in that regard, and that was a key advantage to any suitor," Mr. Levy said.
The deal is subject to approval by bankruptcy courts and government regulatory authorities in Canada and the United States. RIM still has an opportunity to block Ericsson's purchase or reopen the bidding, but a source familiar with the auction said it won't be easy.
A joint hearing is scheduled for Tuesday in Ontario and Delaware, and RIM could file an objection. However, the objection could only be filed in Ontario court, the source said, because the deadline for objections in the U.S. court has passed. That could make it difficult for RIM.
RIM will have a hard time convincing the court to reopen the auction or overturn the sale because the bidding process was approved by both courts weeks ago and RIM had not filed a formal objection within the stated deadline, the source said.
There had been speculation RIM was planning to team up with a bid from MatlinPatterson. However, a source familiar with the auction said there was no sign of RIM at the auction. "They didn't participate," the source said. "We plan on going forward."
In a statement on the weekend, Nortel said it would "work diligently" with Ericsson to close the sale later this year. It also said it would work on finding the right buyers for its other businesses, including a division that makes phones and other telecom equipment for businesses and another that provides network technology and infrastructure.
With files from The Canadian Press
Paul Waldie