Nortel Networks Ltd. has revamped its 4G wireless strategy by deciding to discontinue its WiMax access network products and concentrate instead on its LTE (Long-Term Evolution) development.

But Nortel isn't abandoning the WiMax market altogether. Taking the place of its in-house WiMax access efforts is a strategic partnership with established WiMax vendor Alvarion Technologies Ltd. (Nasdaq: ALVR). “Our original plan to deliver a pure Nortel-only [WiMax] radio product is being discontinued to favor this partnership with Alvarion,” says Gerry Collins, Nortel’s director of wireless in EMEA. “There will be no pure Nortel WiMax product.”

WiMax has been a key pillar of Nortel’s 4G strategy, but today’s news makes it clear the company’s 802.16e access equipment wasn't going to make the grade. (See Zafirovski: We'll Get 4G Right, Nortel Builds WiMax Ecosystem, Nortel, Toshiba Team on WiMax, Nortel Parters With SECI, and Nortel Demos WiMax.)

Nortel's decision won't come as a major shock to some industry watchers: Heavy Reading senior analyst and wireless technology specialist Patrick Donegan noted last year that Nortel's WiMax strategy was flawed, and that the vendor was trailing in the wake of rivals such as Motorola Inc. (NYSE: MOT) and Samsung Corp. (See Nortel's Big WiMax Bet.)

That analysis is backed up by market uptake: Nortel had a few early wins with WiMax, but it hasn’t been nearly enough to catch up with market leaders Samsung and Motorola. (See Craig Wireless Deploys Nortel, Chunghwa Uses Nortel WiMax, Nortel Helps Golden, Nortel Wins in Taiwan, and Nortel, Urban WiMax Team Up.)

Now Nortel is relying on Alvarion to give it a better chance in the WiMax market. The two companies will pool their WiMax resources to create an integrated offering from the base station to the core network, including applications and professional services. Alvarion will supply the 802.16e mobile WiMax base stations, while Nortel will contribute the gateway, core network, backhaul solutions, applications, and professional services.

Nortel said it will refocus its 4G research and development investment on LTE while still contributing some R&D to the WiMax partnership with Alvarion.

The news gave Alvarion's share price a leg up, sending it $0.35, or 4.7 percent, higher to $7.86 in morning trading. Nortel, which also reaffirmed its 2008 outlook and announced a carrier Ethernet deal with Verizon Communications Inc. (NYSE: VZ) today, saw its stock jump by $0.49, or 6 percent, to $8.60. (See Nortel Confirms Outlook.)

Heavy Reading’s Donegan says today’s move reflects badly on Nortel’s 4G program, and that the Canadian firm ought to reconsider its LTE strategy as well.

“What’s surprising about this announcement isn’t that Nortel is exiting WiMax -- it’s that the company is continuing to invest in LTE,” he says. “After the exit from UMTS, this is death by a thousand cuts. The company would be better off closing its internal 4G wireless development program altogether and investing its R&D dollars in areas where it can be a top three player,” adds the analyst. (See Alcatel Snags Nortel 3G Unit.)

The market's to blame...
Nortel says changes in the market prompted its decision to discontinue its own WiMax access product development.

“The market for WiMax is changing and has been for the last 12 to 18 months,” says Nortel's Collins. “Outside North America, we’re looking at a market that’s about serving under-served broadband areas. And Alvarion met that market requirement better. One or two of our customers had already asked to work with Alvarion.”

Adds Collins: “The [WiMax] market has shifted, it’s delayed, and the regional focus has shifted as well,” he adds.

Collins says the goal of the partnership with Alvarion is to be a No. 2 or No. 3 WiMax supplier.

“We’ll drive significant business for Nortel through this partnership,” says Collins. “It will allow us to build good share in WiMax.”

As Nortel’s R&D spend migrates over to its in-house LTE product development, so too will a number of employees, according to Collins. He said there has been a “significant redeployment” in the past two months of people from the WiMax product development over to the LTE program.

Collins would not comment on whether today’s tie-up with Alvarion will lead to Nortel acquiring the wireless broadband vendor.

— Michelle Donegan, European Editor, Unstrung

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