“We will pursue this opportunity to the point it makes sense.”
Those were Ericsson’s (ERIC) words on July 23, the day before Nortel Networks Corp.’s (NT) wireless unit went up for auction and the day the Sweden-based equipment maker decided to duke it out for the bankrupt gearmaker’s CDMA and LTE holdings.
And, apparently, $1.13 billion for Nortel’s wireless business continues to make sense for Ericsson, which beat out Nokia Siemens Networks and private-equity firm MatlinPatterson to snag the business. The amount overshot its rivals’ bargain basement bids significantly and perhaps shows the true value of the assets. But what, exactly, does $1.13 billion buy Ericsson? And what difficulties lay ahead?
Coming to America
First and foremost, Ericsson, which hasn’t cracked the North American market to date but for part of Verizon Wireless’ LTE contract, gains an important geographic foothold through the deal.
“It’s pretty clear that the business is about gaining customers in North America, fending off competitors and securing long-term maintenance and support service revenues as CDMA sunsets,” said Peter Jarich, research director at Current Analysis.
That’s for sure. Soon, Ericsson will inherit coveted contracts with carriers including Verizon Wireless (VZ), Sprint Nextel Corp. (S), U.S. Cellular (USM), Bell Canada and Leap Wireless (LEAP), almost all new customers for the world’s No. 1 maker of wireless networking gear.
“If Ericsson can deal with the merger integration issues in less than a year, [it] could become North America’s dominant wireless infrastructure vendor,” said P.J. Louis, president of consultancy P.J. Louis LLC, which advises telecom and tech companies in need of operational restructuring.
Heck, the stakes could go even higher than that.
“Ericsson may also become the world’s driving force behind LTE,” Louis said in an analysis for Garson Lehrman Group. “In other words, game-changer.”
To that point, an Ericsson takeover of Nortel’s wireless resources has hit rivals, especially NSN, hard.
