Alcatel has signed a preliminary agreement to buy Nortel's third-generation cell phone network unit for $320 million, aiming to achieve greater scale amid cut-throat price competition. The deal, unveiled on September 01, will help the French communications network provider push into tough markets such as China.
It turns Alcatel into the world's third-largest provider of 3G networks, with a market share of around 12-14 percent, behind leader Ericsson and Nokia/Siemens, analysts said.
Previously, Alcatel on its own had an estimated 3G market share of 3 to 4 percent.
The deal comes as the Paris-based group is trying to drum up investor support for its acquisition of US rival Lucent. Shareholders vote on that deal on August 31.
Analysts welcomed the Nortel transaction but warned integrating so many different technologies would be difficult.
"I think they got a reasonable price. But you are looking at putting together three different platforms so the execution of this is going to be a challenge," said Richard Windsor, analyst at Nomura in London.
Windsor estimated the Nortel deal valued the business at about one time annual sales which he noted represented a discount compared to Ericsson which was on two times 2006 sales and Nokia which was on 1.6 times 2006 sales.
Alcatel, which is looking at how it will combine its mobile operations with those of Lucent, said it had signed a non-binding memorandum of understanding to buy Nortel's UMTS radio access business (UTRAN) and related assets.
This includes UMTS base stations, radio network controllers, operation and administration maintenance software and associated services.
"This (3G) was the only segment in which Alcatel did not have critical mass," said Cheuvreux analyst Remi Thomas.
The French company said it expected a significant majority of employees of Nortel's business to be transferred to Alcatel.
For its part, Nortel said the disposal would allow it to focus better on the development of its next-generation mobile networks business and fixed and mobile converged core networks.
"The key is that we did not feel that we had the market share and the scale to make it (UMTS) a profitable business for us," Scott Wickware, Nortel's Vice President of Mobility & Converged Core Networks, told Reuters in a telephone interview.
The acquisition will give Alcatel 14 new customers including Vodafone in Spain, Italy, Portugal and Britain as well as Orange in France, Slovakia and Poland, Belgium.
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