Nortel 4G Plans Up in the Air

Nortel's looking for an exit out of 4G, as well as getting out of the carrier Ethernet and optical markets

September 17, 2008

3 Min Read
Nortel 4G Plans Up in the Air

The future of Nortel Networks Ltd. as a major player in the telecom equipment market was called into doubt today as the vendor's CEO Mike Zafirovski announced that he is looking to offload the company's 4G mobile developments as well as sell off the company's Metro Ethernet Networks division (which includes its carrier Ethernet and long-haul optical equipment). (See Nortel Plunges on New Forecast.)

In Nortel's early morning announcement, the company noted it is seeking to "mitigate the risks associated with the Company's 4th generation carrier wireless investments." Those 4G investments are focused on the development of LTE, now that Nortel is leaning on a recently brokered relationship with Alvarion Technologies Ltd. (Nasdaq: ALVR) for WiMax. (See Nortel Flunks WiMax.)

But now it seems Nortel isn't so keen on developing LTE either, despite repeated claims that it was well positioned to be a major player in that market. (See Zafirovski: We'll Get 4G Right.)

When asked during today's analyst conference call about what actions Nortel might take regarding its 4G developments, CEO Mike Zafirovski said the company is looking for "opportunities to de-risk" its investment. "Future consolidation is necessary in wireless. We're exploring options for 4G that will be best" for Nortel, its customers, and the industry, said the CEO, unhelpfully.

What might those options be? Zafirovski said that "what we did with UMTS and Wimax" are examples of what might happen. Nortel's WiMax strategy is now tied up in the Alvarion relationship, while it sold its 3G UMTS infrastructure business to Alcatel in late 2006. (See Alcatel Snags Nortel 3G Unit.)

Analysts, still parsing Nortel's words, see some value in Nortel getting help from partners. “Ever since Nortel exited the UMTS market it’s been next to impossible to see how investing in their own LTE base station would result in anything but huge losses," says Patrick Donegan, Heavy Reading's senior wireless analyst. "Going down the same OEM path as they have with WiMax would at least ensure that those huge losses won’t be suffered. Whether they can go beyond that and carve out a position in LTE which is actually profitable with an OEM partner is unclear but certainly plausible.”And while analysts pondered exactly what Nortel might do with its LTE developments, Zafirovski launched into a sales pitch.

"LTE is a terrific technology that will provide great value to the marketplace," he stated. "Carriers tell us we have a terrific solution and our trials are going well." (See China Mobile Flexes LTE Muscle and Verizon Goes LTE.)

[Ed. note: "And we'll throw in a white 3G iPhone and a $25 Starbucks voucher for anyone that wants to buy our IPR," he probably should have added, but didn't.]

But, just like with carrier Ethernet and optical, the market is too tough for Zafirovski to believe Nortel can be a leading and profitable player. "With eight, nine, ten players competing, industry dynamics require various forms of cooperation," he added.

"We have to be realistic," he added in response to questions about Nortel's decision to plan divestments. "Our view is that it would be advantageous to focus on a few areas where we can in fact win." It seems the enterprise technology and applications market, and the carrier VOIP and applications market, is where Nortel believes it can be a leader.

In addition, any sales would "strengthen our balance sheet," noted the CEO, adding that "our strong preference is for cash" in any deals Nortel can strike.

So does Nortel have anyone lined up to buy any of its carrier assets? Zafirovski said only that he can't provide any details on any discussions.

And there's no good news on the company's existing CDMA business either. Zafirovski said there has been "no improvement" in the CDMA sector since it hit the company's second quarter numbers, and, in fact, there has been "additional pressure." (See CDMA, Charges Knock Nortel.)

— Ray Le Maistre, International News Editor, Light Reading

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