Exclusive – Nokia details thinking behind Alcatel-Lucent acquisition

At a time when the telecoms industry is rife with M&A activity, the proposed acquisition of Alcatel-Lucent by Nokia announced earlier this year still stood out as pivotal.

Big mergers are often easy to justify on paper – economies of scale, synergies, etc – but often fail to deliver in practice. To try to get a better idea about the chances of this move succeeding Telecoms.com spoke to Marc Rouanne, EVP, Mobile Broadband at Nokia Networks in an exclusive interview, who opened by setting the scene for the move.

“The market is experiencing disruption, with much more visibility of cloud technology, of all the datacentres and new ways of distributing services and software, and the strong penetration of IT,” said Rouanne. “This means we believe a new investment cycle will start and different people will see different things. But whichever way you look at it there is certainly something coming so we think it’s a good time to prepare for this new cycle of technology and requirements.

“So then you look at what assets you need and Nokia has done substantially well in its turnaround when it comes to the technology for mobility and we wanted to expand the scope towards more of the IP and the wider portfolio of access technologies including optical, and also some of the assets Alcatel-Lucent has developed more recently like their cloud capabilities.

So that covers the synergies from a core competence point of view: Nokia is best at mobile while A-Lu has got fixed, and perhaps more importantly IP, covered. Rouanne also feels this is a good time, both in Nokia’s development and in the evolution of the market.

“It is also a good time for ourselves because we have completed a phase of our turnaround and it’s important to put things in a certain sequence,” he said. “We said a few years ago we were refocusing on mobile broadband and associated technologies, and we’ve executed on that.

“More and more operators are consolidating assets – fixed, mobile, cable – and in the past few years there has been a lot of consolidation from our customers between mobile and fixed. As an end user you just want the best speed regardless of how it’s delivered, so we’re seeing more blending of the technologies.

“5G is going to be a lot of fun for all of us in the next years and everybody is going to say ‘it’s not me who is hyping but then in the next sentence we will. We’re starting to understand some of the requirements and expectations of 5G, such as lower latency, higher security, lower power for tens of billions of devices, hetnets and nobody believes all of 5G will be unique technology – it will embrace some of 2G, 3G and 4G.”

Lastly Rouanne observed the commercial and geographical strengths of the two companies are complementary. “It’s important to us to be connected to operators and markets that are very advanced,” he said. “Nokia has been successful in some very advanced markets like Korea and Japan, and we’re doing very well in China where there’s very strong 4G demand.

“If you look at Alcatel Lucent they’re doing very well in the US, which is a market that’s very exposed to internet, OTT players, so it’s a market that has a different nature of demand and for us it’s important to be exposed to that market in a balanced manner. The Alcatel Lucent acquisition brings a more balanced capability to be exposed to the North American market.”

While all these points in favour of the move remain theoretical until it is complete and can be put into practice, it’s also easy to see the combined company positioning itself strongly for the seismic shifts expected to take place in the telecoms and IT markets over the next five years. An acquisition of this size takes time to complete, but the likes of Ericsson and Huawei seem to be assured of strong competition for some time yet.