Nokia, the Finnish telecoms equipment giant, and Germany's Siemens said on June 19 that they will combine their network equipment businesses in a 50-50 joint venture valued at US$31.6 billion. The new company is to be called Nokia Siemens Networks.

 

The merger is expected to create the world's third-largest telecoms infrastructure company. Analysts said the deal is part of the ongoing consolidation of the global communications market, and it will also have a big impact on the Chinese market.

 

"The Alcatel-Lucent merger has already accelerated the pace of rationalization in the communications equipment market," said Robert Clark, a Hong Kong-based technology analyst.

 

"It makes for three very big players Alcatel-Lucent, Nokia-Siemens and Ericsson-Marconi and makes smaller players such as Nortel Networks and Motorola more vulnerable."

 

Alcatel in April announced it would acquire Lucent, which will create the world's top telecoms gear maker in terms of annual sales.

 

Motorola and Nortel "are doubtless looking for partners now," said Clark. "There will surely be more mergers and acquisitions (M&As) as we go forward."

 

Analysts said China's top telecoms equipment makers Huawei Technologies and ZTE Corp might seek to join hands with Motorola or Nortel.

 

Huawei was rumored to be one of the bidders for British communications firm Marconi. Ericsson finally won the bid last October and bought most of Marconi's assets for US$2.1 billion.

 

Motorola is less likely to be a target for Huawei or ZTE as there might be some political hurdles in the US, analysts said.

 

But the financially troubled Nortel is a likely target. Huawei earlier announced it would form a joint venture with Nortel to develop broadband products. The joint venture has reportedly been called off. But Huawei and Nortel might be forced to join hands again for even broader partnerships after this Nokia-Siemens merger.

 

"Siemens is very strong in emerging markets, particularly Latin America. The combined company (with Nokia) will have a deeper penetration capability in those markets, which creates more challenges for Huawei and ZTE," said X. J. Wang, a Boston-based telecoms analyst with research firm Ovum.

 

"The combined company is also well-positioned for emerging markets in the Asia-Pacific such as India."

 

Huawei and ZTE generate most of their overseas revenue from developing countries or emerging markets. In the first half of last year alone, Huawei's overseas revenue had already exceeded its domestic turnover.

 

Thanks to their low-cost and high-quality telecoms equipment, Huawei and ZTE already pose a threat to established global vendors.

 

The Nokia-Siemens deal, which will save the two firms 1.5 billion euros (US$1.9 billion) per year, is understood to have been partly designed to fight off Huawei and ZTE, analysts said.

 

Eagle Zhang, vice president of Beijing-based research house Analysys International, said TD-SCDMA, a Chinese homegrown standard for third generation (3G) mobile telephones, might have played a role in the Nokia-Siemens deal. Compared to rivals such as Alcatel, Nokia is a latecomer to the TD-SCDMA camp; the firm only formed a joint venture with Chinese telecoms equipment maker Potevio last October.

 

The 3G networks based on TD-SCDMA have yet to be commercially deployed unlike the rival 3G standards WCDMA and CDMA2000. The Chinese government is betting that TD-SCDMA can help to reduce reliance on foreign technology.

 

"China's persistent support for TD-SCDMA has forced foreign companies such as Nokia to review their strategies and expertise in Chinese technology," Zhang said.

 

Siemens is incidentally the largest foreign investor in TD-SCDMA technology.

 

The Nokia-Siemens deal is also expected to squeeze Huawei and ZTE in the future WCDMA market in China.

 

Globally, Ericsson, Nokia and Siemens are the world's top three WCDMA players.

 

The Chinese government has yet to decide when and how to allow operators to build 3G networks. But China Mobile, the world's largest mobile operator in terms of subscribers, is widely believed to favor the WCDMA standard.

 

"Obviously, Nokia-Siemens will become a much stronger force in the Chinese market, which will make them a strong competitor when offering WCDMA solutions," Wang said.

 

"This will have a negative impact on Huawei and ZTE."

 

(China Daily June 21, 2006)