Nortel & Huawei: Broadband Buddies
Nortel Networks Ltd. and Huawei Technologies Co. Ltd. are forming a joint venture company to develop "ultra broadband access solutions" for the global service provider market, the duo announced today.
The new company, which will be based in Ottawa, will be majority-owned by Nortel and is expected to be in operation in the third quarter of 2006. Nortel is already marketing Huawei's broadband access gear to carriers, and the two firms have already started joint product development.
The move follows Nortel's joint venture engagement with LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , though that is more specifically focused on wireless developments and Korean market opportunities. And Huawei already has an OEM deal in North America with 3Com Corp. (Nasdaq: COMS), but that is targeted at the enterprise switching market. (See Nortel's Owens: Krazy About Korea, Nortel, LG Seal Deal, and 3Com & Huawei Launch Switch in US.)
The yet-to-be-named JV -- Norwei, Huatel? -- is to develop a next-generation multiservice access platform designed specifically to enable carriers to converge their voice, data, video, fixed wireless (such as WiMax), and, down the road, even mobile network traffic onto a single IP network, says Nortel's VP and general manager of broadband networks, Walt Megura. The resulting products will then be marketed by the two vendors around the world.
He says Nortel will bring its voice and optical networking experience together with Huawei's broadband technology to create new products for Tier 1 and Tier 2 carriers in all markets. "You'd be hard pushed to find a market where there wouldn't be demand for such products," reckons Megura.
"Convergence is really taking off -- this is a big opportunity for us and our partner, and will allow us to participate in a meaningful way. This shows our focus and commitment to this space."
So, how big a deal is this for the new partners? "At first glance, this looks like a great move for both -- access to important markets and working together to develop a real fixed/mobile convergence solution. It gives Huawei better access to North America and gets Nortel into the access game in a huge way," says Scott Clavenna, Chief Analyst at Heavy Reading. "But I would always look on major joint ventures with some real skepticism and concern about just how well these companies can work together and co-develop products across such a gulf. History hasn't been terribly kind to ambitious joint ventures." (See AT&T and BT to Unwind JV.)
The partnership fills a massive hole in Nortel's portfolio, as the company pulled out of the fixed-broadband access market a few years ago, a move it has come to regret. (See Nortel CEO: We Blew It on DSL.)
Huawei, conversely, has registered significant success in the DSLAM and multiservice access market and is one of the access vendors in BT Group plc (NYSE: BT; London: BTA)'s high-profile 21CN next-generation network project. (See Huawei Deepens DSLAM Penetration, Huawei, ZTE Ramp Up IP Access, IP DSLAM Revenues Jump 20%, and Vendors Sign BT 21CN Contracts.)
And while broadband port prices have been dropping sharply every year, there's still a lot of money to be made by the equipment vendors. According to market projections by the Dell'Oro Group , the broadband access market was worth nearly $9 billion in 2005, with IP DSLAMs accounting for $1 billion. The research firm predicts the IP DSLAM market will be worth $2 billion in 2008.
But it's not as if Nortel hasn't already tried to plug its broadband gap, as it has previously struck partnerships with ECI Telecom Ltd. , Calix Inc. (NYSE: CALX), and Keymile AG in an effort to keep its name in the frame -- though there have been very few signs of any market traction as a result, with Sprint Corp. (NYSE: S) the only significant scalp. (See Nortel Gets Back Into Broadband, Nortel, Calix Get Access at Sprint, and ECI Gets Euro FTTH Deal.)
While the Huawei JV looks like negative news for those partners, Megura insists those partnerships will be maintained: "I see the joint venture as an adjunct [to those relationships] for next-generation technology, and I see a time when we have a technology option to bring to them. It will be up to the customer to decide."
Nortel says details about what portion of the company each partner will own, and who will manage the JV, have yet to be decided.
The news is the latest big splash for Nortel's new CEO, Mike Zafirovski, who has been stamping his authority on the vendor since he took over in November last year, though Megura says the talks with Huawei were initiated before the new skipper took the helm. (See Nortel's New Faces Face Tough Task and Nortel's Clent Came & Went.)
— Ray Le Maistre, International News Editor, Light Reading