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Ericsson Buys Nortel's GSM Biz Too

Michelle Donegan
LR Mobile News Analysis
Michelle Donegan
11/25/2009

Ericsson AB (Nasdaq: ERIC) is set to acquire more of Nortel Networks Ltd. 's wireless business in North America following the latest auction of the bankrupt Canadian vendor's assets.

Nortel auctioned off its GSM and GSM-R (GSM for railways) businesses Tuesday for $103 million to two bidders: Ericsson and Austrian systems integrator Kapsch CarrierCom AG . Ericsson will pay $70 million on a cash and debt-free basis for Nortel's GSM business in the U.S. and Canada, while Kapsch CarrierCom will pay $33 million for Nortel's GSM business in EMEA (Europe, Middle East, and Africa) and Taiwan, and the GSM-R business.

For Ericsson, this is the second time it has won a Nortel mobile asset auction. The Swedish vendor successfully bid $1.13 billion for Nortel's CDMA business and LTE access assets in July: Any shred of doubt left about the Ericsson's intentions for the North American market must surely now be eliminated. (See Juniper Reports Q2, Ericsson: Why We Want Nortel's Wireless, and Nortel Wireless Winner: It's Ericsson!)

Indeed, Ericsson says this GSM acquisition, along with the purchase of the CDMA and LTE assets, and the recent managed services contract with Sprint Corp. (NYSE: S), makes North America the "largest geographical segment" within the company in terms of sales. (See Ericsson, Sprint in $5B Managed Services Deal.)

The Swedish vendor's headcount has also grown as a result of those deals. Ericsson employed 5,000 people in the U.S. and Canada at the beginning of this year, and now employs 14,500, of which 6,000 employees were transferred from Sprint, and about 2,500 were acquired with Nortel's CDMA and LTE units.

Ericsson will offer jobs to about 350 Nortel GSM staff, while Kapsch is to offer continued employment to about 330 Nortel GSM/GSM-R staff.

With Nortel's GSM business, Ericsson is acquiring an installed customer base in North America that generated about $400 million in revenues in 2008. Two of the key operator customers are AT&T Inc. (NYSE: T) and T-Mobile US Inc. .

Outside North America, Kapsch, which has worked closely with Nortel for about 20 years, will take on Nortel's GSM business in EMEA and Taiwan, as well as the global business for GSM-R equipment, a GSM mobile communication system for railway operators. Nortel claims its GSM-R business is the market leader.

The sale of the GSM/GSM-R assets is expected to close in the first quarter of 2010, subject to regulatory approvals. A hearing for court approvals in the U.S. and Canada is scheduled for Dec. 2.

Including the GSM/GSM-R business, Nortel has raked in more than $2.9 billion from its asset sales this year, and it still has a few more operations left to sell. (See Nortel: What's Left on the Shelf?)

— Michelle Donegan, European Editor, Unstrung

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