Alcatel-Lucent and Nokia merge could form infrastructure powerhouse – Ovum

Speculation has intensified this week over a potential move by Nokia to acquire rival network kit maker Alcatel-Lucent (ALU), in what could be a serious shake up of the telecoms infrastructure market. This morning, ALU released a statement confirming that the two parties are currently in talks.

In a brief statement, ALU addressed recent media speculation and confirmed advanced discussions are ongoing. The most interesting part of the announcement concerns the potential outcome of any deal, however. According to ALU Nokia would, hypothetically, be providing a full public exchange offer, which essentially amounts to full ownership.

“In relation to recent media speculation Nokia and Alcatel-Lucent confirm that they are in advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent,” said the statement from Alcatel-Lucent. “There can be no certainty at this stage that these discussions will result in any agreement or transaction.”

A Nokia representative declined to comment further on the announcement.

What could result from any potential merger, however, would be another major network infrastructure powerhouse – a third party to compete with Huawei and Ericsson’s dominance. Nokia’s recent success in LTE has seen its wireless business become its core strength, where as it could be argued Alcatel-Lucent’s strengths lie more in fixed, access and optical.

Speaking to about the announcement, Julian Bright, senior analyst at research house Ovum said the result would be an OEM capable of servicing the entire telco network, and could create a much more interesting industry environment.

“Any deal would add a third layer to the large vendor dynamic, currently you’ve got Huawei and Ericsson who are battling it out for the top spot,” he said. “Nokia has been in a bit of a following up position, but it’s got a very strong wireless and LTE business, whereas Alcatel-Lucent has lacked direction and is itself going through a bit of restructuring. Essentially what you’ll then have are three major, large scale OEMs battling it out instead of two plus other smaller-scale companies. It makes the industry dynamic more interesting.”

While the potential outcome of a merge between the two vendors would see the creation of a disruptive player to major industry incumbents, Bright warned that a merger of this size could see the two companies get bogged down by the process itself, which could result in the two companies losing focus on their core strengths.

“The downside is that mergers on this scale are so difficult to undertake and challenging for both companies, which have both been through this process in the past decade,” he said. “It took them a couple of years to get through the merger process in both cases. Alcatel-Lucent is going through a major restructuring at the moment, Nokia has completed one and to embark on the whole process again is a fairly risky and large-scale undertaking.”

The risk, Bright claims, is that the telecoms industry is moving too quickly to risk losing focus.

“The risk is that when companies take their eyes off the ball, they lose market focus and become introspective, focusing on how you bring the two companies together,” he said. “At a time when the industry is in a massive transitional phase from LTE to LTE-Advanced and the tech that leads up to 5G, companies need to focus on R&D and driving forward with technical advances. If you’re focused on a merger process then that inevitably distracts from what companies are mainly there to do, which is develop technologies and sell them to market.”

Rumours of the merger have been circulating for months, and both ALU and Nokia have now been cornered into addressing the media speculation head-on. It is interesting that both parties have come out and acknowledged the rumours, and it’s certain that a lengthy discussion process will ensue before any outcome arises.

The news comes after reported this week that Nokia is looking to sell its mapping business, HERE, which would lead to an even greater focus on telecoms network infrastructure.

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