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Big Vendors Coy on Mergers

NEW ORLEANS -- CTIA Wireless 2005 -- Sometimes what's not being said is more interesting than what's being said.

That's the case here at Cellular Telecommunications & Internet Association (CTIA) industry show, where the Tuesday morning keynote, normally reserved for a panel of carriers, was taken, instead, by the four of the world's largest equipment suppliers.

The panel included Pat Russo, chairman and CEO of Lucent Technologies Inc.; Mike Quigley, CEO of Alcatel North America; Carl-Henric Svanberg, president and CEO of Ericsson AB; and Bill Owens, president and CEO of Nortel Networks Ltd. All but Ericsson have been the recent subjects of many a vague and unsubstantiated merger rumor. CTIA president Steve Largent asked the panel if there would be massive vendor consolidation to mirror what's happening in the carrier world. The panelists, seemingly at a loss for words, could only exchange looks, smile, and giggle uncomfortably for nearly a minute and a half.

Finally, Svanberg took the bait with an answer about how maybe some vendor pairings wouldn't be such a great idea. "It's not as easy on the vendor side," says Svanberg. He noted that all the vendors approach the network differently, so while there may be some things in common, each is "different when you go into the details of it."

Owens, however, noted the specter of Chinese equipment players, which have a reputation for underpricing the competition -- a strategy that could force some big vendors to get together. "It's going to be interesting to watch, because we have new competitors: Huawei, ZTE, UTStarcom, etc. And they affect our marketplace all around the world."

His remarks were apparently amplified by other Nortel executives in one-on-one analyst meetings during the show.

"Nortel described the level of aggression being seen from Huawei in the low end of the wireless infrastructure market," Citigroup analysts Daryl Armstrong and Mike Genovese wrote in a research note distributed this morning. "[Nortel notes] that the terms being offered by Huawei essentially amounted to 'free equipment.'

"Overall, the commentary was that the vendor was willing any level of 'pain' in order to get a deal that was predicated on pricing alone."

Huawei has always denied that it sells based on low pricing alone, but a company spokesman here concedes that "we seem to always be cost competitive."

Meanwhile, back at the CTIA keynote, Lucent's Russo, who was saddled with a crackling microphone, nudged the topic out of the realm of M&A. "[Competition] has broadened our thinking about what we mean by consolidation," said the Lucent chief through a wall of hisses and pops that were presumably not coming from the audience. "What you're seeing in the industry is willingness and a flexibility to form partnerships… Everyone's recognized you can't do everything, so you've got to find creative ways to do consolidating-like activities that aren't necessarily consolidations."

Alcatel's Quigley folded his hands and said nothing.

The remainder of the session was more of a softball hitting competition, with Largent holding back any curves and sliders.

On the topic of 4G -- the conceptual framework for a universal, high-speed, wireless network -- Nortel's Bill Owens pulled the emergency brake and won a smattering of applause.

"We are really not into 3G yet," he said. "Does your WiFi work in your hotel room? Let alone voice-over-IP on that network. Let alone 3G, 4G, etc."

Ericsson's Svanberg, grinning widely, shook his head.

"We have a long ways to go with all of us working on this," Owens continued. "We need to be dreaming, but at the same time, get real about making what we have today work."

Quigley says equipment vendors need to draw on their experiences in the wireline world before jumping too far ahead in high-speed networks. His point was that there is still a lot of work left to be done on applications. "One thing that's been learned is to make sure providers don't have their broadband pipes commoditized," he said.

Largent followed the 4G topic with the blockbuster question: "What does the future hold?"

And the panelists, good sports, obviously, tried to answer.

The replies centered around converged services, access-agnostic networks, lots of opportunities for growth, and other such phrases that tend to calm investors.

Once again, though, Owens stole the show. Looking right at Ericsson's Svanberg, he said: "Nortel's vision for the future is to take a big share of the Swedish telecom market."

Svanberg shook Owens's hand hard, but his reply was unintelligible. Maybe he and Russo switched microphones.

— Phil Harvey, News Editor, Light Reading

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