Ericsson Snaps Up LG-Nortel Stake

Ericsson AB (Nasdaq: ERIC) may need to change its name to Noricsson, as it's buying yet another piece of the Nortel Networks Ltd. empire.

Having already acquired the Canadian vendor's CDMA and Long Term Evolution (LTE) business for $1.13 billion in July 2009, and the North American part of Nortel's GSM business for $70 million in November last year, the Swedish giant is shelling out US$242 million for Nortel's 50 percent-plus-one-share stake in LG-Ericsson Co. Ltd. , the joint venture with LG Electronics Inc. (London: LGLD; Korea: 6657.KS) that has built its business mostly, but not exclusively, in the Republic of Korea (South Korea). (See Ericsson Buys Nortel's GSM Biz Too, Nortel Wireless Winner: It's Ericsson!, and Ericsson Delivers Knockout Blow to NSN.)

The move isn't unexpected -- the deal was rumored a month ago. (See Rumor: Ericsson to Buy LG-Nortel Stake.)

LG-Nortel, which will be renamed LG-Ericsson, generated revenues of $644 million in 2009. That means Ericsson, which says the business will "have a positive effect" on its earnings within a year of the deal closing, is picking up the business for less than the pro rata revenues.

The joint venture, which had about 1,300 staff at the end of 2009, markets a range of IP phones, unified communications platforms, VoIP systems, fiber-to-the-home gear (WDM PON), and wireless and optical infrastructure products to operators and enterprises of all sizes, and counts Korea's main carriers -- KT Corp. , LG Telecom , and SK Telecom (Nasdaq: SKM) -- among its customers.

Ericsson says the deal will "significantly expand [its] footprint in the Korean market and provide [it] with a well established sales channel and strong R&D capability in the country," as well as "an industrial base and the ability to build new customer relationships." It also expects the joint venture to contribute to the "green ecosystem" initiative it has created with the Korean government. (See Ericsson Touts LTE for Korea's Green Economy.)

The move also gives Ericsson a boost in the field of next-generation fixed broadband technology. LG-Nortel has been arguably the leading proponent of WDM PON (passive optical network) technology since it acquired Novera in 2008, and it's been plowing R&D and marketing resources into that part of its business, resulting in some small but potentially fruitful (and instructive) deployments. (See Nortel JV Buys WDM-PON Specialist, LG-Nortel Adds WDM-PON Partners, LG-Nortel Demos WDM-PON Ecosystem, BBWF: WDM PON? Bring It On!, CPE Vendors Join WDM-PON Ecosystem, Who Makes What: GPON & WDM-PON Equipment, LG-Nortel Wins Norway PON Deal, and Hancock Uses WDM-PON.)

"It gives Ericsson another avenue to explore and allows them to hedge their bets about where PONs are going," says Heavy Reading chief analyst Graham Finnie, an expert on the fiber access broadband market. (See FTTH in Europe and Fiber, Fiber Everywhere….)

"LG-Nortel is one of the leaders in WDM PON research, and there is definite interest in that technology among carriers," adds Finnie.

Ericsson has been touting its GPON gear globally, but, apart from landing a major gig with AT&T Inc. (NYSE: T) and some business in China, it has had limited success. (See BBWF: Ericsson Enters AT&T's GPON Domain, Ericsson Scores GPON Wins in China, and Ericsson Wins GPON, IPTV Deal.)

— Ray Le Maistre, International Managing Editor, Light Reading

DCITDave 12/5/2012 | 4:38:56 PM
re: Ericsson Snaps Up LG-Nortel Stake Too expensive, eh?
DCITDave 12/5/2012 | 4:38:56 PM
re: Ericsson Snaps Up LG-Nortel Stake

I'm looking forward to a lot more info on the technology and applications supporting WDM-PONs. Ericsson has been pretty good about talking up advanced apps for LTE so I'm hopeful that we'll see some "why" behind the "how" pretty soon.

paolo.franzoi 12/5/2012 | 4:38:56 PM
re: Ericsson Snaps Up LG-Nortel Stake




Just a suggestion....You might be best served by looking into WDM prices and costs before you get hung up on the technological aspects.



paolo.franzoi 12/5/2012 | 4:38:55 PM
re: Ericsson Snaps Up LG-Nortel Stake


Expensive is all relative.  The original Novera product delivered 100 Mb/s symmetric.  The 2nd generation product is supposed to deliver 1 Gb/s.

Flip over to the other fiber access choices....direct point to point and then TDM PONs like EPON/GPON (they are called TDM PONS because the upstream is broken into timeslots and shared).

It would not be obvious that WDM PON is cheaper than Point to Point Ethernet given today's environment and volumes in the small scale.  In essence one is trading the use of some complicated optics for putting another fiber in the ground.  If you are already building a fiber, it is completely unclear to me why that is very expensive.  Much of the work in the European research into WDM PONs is based around building the equivalent of a city wide OLT that can support 10s of thousands of users over TDM PONs WDMed together via ROADMs.  There are issues of power transmission and reliability to work out for sure, which is why nobody is making that stuff now.  But at least, one is back to reducing lasers and such.

Because the CO side laser reduction is how TDM PONs end up lowering the price of FTTH over direct point to point.  You get to share that cost (BT estimated it at a 10% savings) across more users.

So the question you have to ask is: What cost can people put into a network and deliver effective services?  That will look at things like ARPU and network costs and you could use Verizon and NTT as test cases.  Once you have that settled you could then say if my costs are higher what kinds of ARPU would I need to build a network to do that?  That should give you an idea of the kinds of applications that would work.

Finally, you have to ask yourself - sheesh do I have enough sites and density of sites to justify putting in a WDM PON over point to point ethernet? 




digits 12/5/2012 | 4:38:55 PM
re: Ericsson Snaps Up LG-Nortel Stake

There's no scale in the market currently, so the component prices are probably Wolfman scary, but it's a neat sector in which to have a technology lead and some 'thought leadership', which I think LG-Nortel can claim.

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