Nortel to sell out of GSM business?

Beleaguered Canadian vendor Nortel Networks is reportedly planning to hive off its GSM business for up to $1.9bn (£1bn) and Alcatel is in the picture as the buyer.

Nortel is not a strong player in the GSM infrastructure market in comparison to Ericsson and Nokia, and the vendor has so far been left out of the mega-merger activity because of its financial troubles. Over the past few years, Nortel has stumbled from one accounting scandal and restatement process to another.

According to Gartner, the megatrend is that revenues in the GSM family infrastructure market are flat at best and will continue to decrease through 2010 – a trend that has already seen consolidation between Alcatel and Lucent, Nokia and Siemens and Ericsson and Marconi.

Meanwhile, the ever growing threat from Asia, particularly from Chinese vendors like Huawei, has more recently pressed Motorola into a 3G partnership with Huawei. Some commentators have suggested that it is only a matter of time before Nortel gets involved in the consolidation process.

Although Alcatel has already boosted its equipment presence through the merger with Lucent, the acquisition of Nortel’s unit would better place it to go up against Ericsson and Nokia.

But some find the rumours puzzling. Mike Roberts, principal analyst at Informa Telecoms & Media said that Nortel has its GSM and UMTS units in one division, “so it would make sense to sell the whole division rather than trying to split off GSM only.

“As Nortel is a minor player in WCDMA with less than 10 per cent market share, it’s reasonable to assume that its entire GSM/UMTS division also has less than 10 per cent market share,” Roberts said. “The company needs to do something given recent market consolidation, and one option would be to sell the division to Alcatel.”

Earlier rumours suggested that Nortel could be in discussions with Siemens to buy up the German vendor’s Enterprise Networks unit. Following the deal with Nokia, Siemens looks to be getting out of the communications game altogether.