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Size matters in mobile, but Nokia may find bigger isn't better

Stephen Lawson | April 17, 2015
Size is power in the mobile networks business, but it's only one of the reasons Nokia is acquiring Alcatel-Lucent.

But looking at Alcatel-Lucent in particular, Nokia considered the deal worth it, Marshall said. For one thing, Nokia wants the company's big customers in the U.S., where Nokia hasn't had a big network presence. Alcatel-Lucent sells gear to both Verizon and AT&T.

The other prize it sees in the purchase is Alcatel-Lucent's extensive IP (Internet Protocol) routing portfolio, Marshall said. It may be a valuable asset in the future of wireless.

"The mobile network is becoming increasingly fixed," he said. As carriers roll out more and smaller cells to give users more capacity, they need bigger wired networks to connect those nodes. Huawei is a big player in those IP networks as well as in mobile, and Ericsson acquired an IP routing business with RedBack Networks several years ago.

Getting bigger might help Nokia compete in the long run, but it may not be worth the disruption, Jarich at Current Analysis said. From now until the deal closes, which isn't expected until the first half of next year, customers won't know quite how the various divisions and product lines will shake out, he said. Competitors will be merciless in taking advantage of that uncertainty.

The transition will follow years of disruptions at the two companies making the deal. Alcatel and Lucent's merger in 2006 was a long struggle with numerous executive changes and painful cuts. Nokia formed a joint venture with Siemens for wired and wireless networks in 2007, and the resulting Nokia Siemens Networks then cut thousands of jobs in the following years.

In the aftermath of those difficult combinations, both Nokia and Alcatel-Lucent sharpened their focus in recent years. Nokia sold off its wired broadband and optical businesses to concentrate on mobile broadband. Both improved their results by specializing, so the idea of forming a bigger, broader company flies in the face of that lesson, Jarich said.

"How do you balance the argument that you managed to do OK by focusing with the argument that you need scale?" he said.

Coming on the heels of so much disruption at both companies, the latest move might end up turning off customers.

"This stuff gets a little tiring," Jarich said.

 

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