Who's Dialing In for Nortel's VoIP Assets?
According to analysts who are tracking these developments, the list of possible candidates includes Sonus Networks Inc. (Nasdaq: SONS), Genband Inc. , Nokia Networks , and Avaya Inc. , with Alcatel-Lucent (NYSE: ALU) and Metaswitch Networks among the darkest of the dark horses.
Among that group, it's believed that NSN, Genband, and Sonus have requested the books for Nortel's VoIP and switching division.
But in comments to Light Reading following its $650 million "stalking horse" deal for Nortel's CDMA and Long-Term Evolution (LTE) access technology, NSN said it does not have any plans to acquire other Nortel assets. But it didn't rule out further negotiations, so NSN has at least left itself some wiggle room. (See NSN Picks at Nortel's Mobile Bones , Nortel: It's All Up for Sale, NSN: Is Verizon on the Horizon?, NSN Misses Nortel's Key APAC Assets, Nortel's LTE Brain Drain, and Richard Lowe, President of Carrier Networks, Nortel.)
NSN already has a decent softswitch anyway, so any play for Nortel's VoIP assets would be to buy market share, notes Avian Securities LLC senior research analyst Catharine Trebnick. Although a Nortel deal would bring Cox Communications Inc. and Charter Communications Inc. into the NSN VoIP fold, NSN is already solid with Time Warner Cable Inc. (NYSE: TWC) and Cablevision Systems Corp. (NYSE: CVC), and will likely use its own gear to pursue next-gen cable wins centering on PacketCable 2.0 and the IP Multimedia Subsystem (IMS), she says. (See PacketCable 2.0: Back on the Front Burner and The Slow Road to PacketCable 2.0.)
Trebnick still views Sonus as the lead candidate. She's previously said Sonus is in the running to buy Cedar Point Communications Inc. , a VoIP gear company that has historically emphasized cable. (See Sonus Looking at Nortel Assets, Cedar Point.)
But how much would Nortel's VoIP and switching assets fetch? Trebnick estimates that the VoIP assets could be worth $800 million, with the legacy stuff worth about $250 million. In all, Nortel has about 320 different carriers using equipment from that unit. "It's a billion-dollar business," she says.
But getting $1 billion for it is another matter. Based on the $650 million price of the NSN deal, Nortel could realistically get about $350 million for the VoIP and switching assets, she says.
That price could bode well for Sonus, which had $386.1 million in cash and investments at the end of the first quarter. "It would hit their balance sheet, but it would be their last hurrah," Trebnick says.
Although Genband could be in the running, "it's too big of a chunk for them to boil down," Trebnick says, noting that the vendor could factor in whether Nortel was willing to break out its media gateway assets. "I don't think [Nortel's VoIP and switching assets] are fire sale material quite yet." And even if NSN had a change of heart, it would probably have to raise more funds, she adds.
Although Huawei Technologies Co. Ltd. is looking to beef up its presence in North America, Trebnick thinks it's not in the running for Nortel's VoIP/switching assets because of conflicts with the Chinese giant's own gear. (See Huawei Steps Up in North America and Huawei Has New Softswitch.)
As for Nortel, it's still not saying much about the bidding activity involving its VoIP and Metro Ethernet Networks (MEN) divisions. "The Company is advancing in its discussions with external parties to sell its other businesses -- this will provide an opportunity to maximize value while preserving innovation and jobs to the greatest extent possible," the company reiterated, in a prepared statement.
A Metaswitch official declined to comment. The other potential suitors could not be reached for comment.
— Jeff Baumgartner, Site Editor, Cable Digital News