The industry rumor mill is in full flood over the possibility of a growing rift between Hutchison 3G UK Ltd. and Nokia Corp.'s (NYSE: NOK) network division, over the rollout of the British carrier’s 3G network.

According to industry sources close to Unstrung (who requested anonymity) Hutchison has experienced continuing problems with the performance quality of Nokia’s W-CDMA (Wideband Code Division Multiple Access) infrastructure and is considering dropping the Finnish company from the second phase of its U.K. rollout.

Financial analysts say the latest issues highlight a history of similar experiences. “This would all point to a certain amount of dissatisfaction with Nokia,” says Stuart Jeffrey, telecom equipment analyst at Lehman Brothers. "I know they haven’t been enormously chuffed with Nokia’s past performance.”

In April 2001 Nokia signed a €500 million (US$586 million), three-year agreement with Hutchison 3G UK to provide W-CDMA network infrastructure kit. According to a company statement, Nokia was to be the “core 3G network supplier,” including delivering packet core elements and mobile switches, and would be responsible for covering “approximately 50 percent of the U.K. population spanning the southern half of the U.K. as well as Northern Ireland.” Nokia was to share the radio access network contract (including base stations): A joint alliance of NEC Corp. (Nasdaq: NIPNY) and Siemens Information and Communication Mobile Group was to run sites north of the River Severn and the Wash.

This deal was later reversed, however, and Nokia was made responsible for the network in the North. NEC and Siemens won control of the contract in the South. No specific reasons were given by Hutchison at the time for the sudden compass-point turnaround.

According to Lehman Brothers’ Jeffrey, however, there were technical issues with the performance of Nokia’s base stations. “The fire brigade came to inspect the base stations and discovered that the operating temperature was too high,” he says. “I understand this made it difficult to obtain insurance. Nokia claimed it was an installation problem.”

Thomas Jönsson, Nokia Networks’ communications director, says such claims are unfounded. “There was an isolated incident with one base station a year ago that was resolved and was not related to Hutchison. It was concerned with the heat of the base station but it wasn’t serious. I am not aware of any problems with Hutchison. We have a public contract with Hutchison in the U.K. and there is no change to that.”

Hutchison 3G spokesman Edward Brewster is also playing down the regional trade in contract awards and the latest market rumors. “That wasn’t a major swap-out,” he claims. “There is no public announcement to be made now. There is no problem.” [Ed. note: No! No! No!]

Recent developments certainly hint to the contrary. Last month NEC and Siemens issued a joint release announcing the successful completion of the first stage of its radio network for Hutchison 3G UK (see NEC, Siemens Power 3). No corresponding claim was made by Nokia.

It's also noteworthy that Hutchison Telecommunications (Hong Kong) Ltd.'s 3G operation is expected to opt for LM Ericsson (Nasdaq: ERICY) infrastructure rather than a previously touted Nokia deal. “I believe it has been confirmed,” says Jeffrey. “It is being spoken of as fact in the financial markets.”

Hutchison has proven itself capable of terminating supplier agreements with little notice. In November last year the carrier severed relations with one of its OSS suppliers, TTI Telecom International Ltd. (Nasdaq: TTIL) (see Hutch 3G Dumps Supplier).

Unstrung geographical tidbit du jour: The Severn is the longest river in England and floods almost yearly.

— Justin "Chuffed" Springham, Senior Editor, Europe, Unstrung