China Mobile has signed a €1.36 billion ($1.53 billion) agreement with Finland's Nokia that will cover the provision of various network technologies and services.
The "frame" agreement could help to boost confidence in Nokia Corp. (NYSE: NOK) amid concern about the company's long-term prospects in the rapidly consolidating market for telecom network equipment. Shares in the company were trading up 2.4% in Helsinki on Monday afternoon.
Following its €15.6 billion ($17.6 billion) takeover of Alcatel-Lucent (NYSE: ALU), Nokia suffered a 9% drop in sales in the first three months of the year -- due to weakness in the large mobile networks business -- and is currently slashing jobs in an effort to reduce costs. (See Wireless Weakness Dents Nokia Sales, Outlook.)
The deal announced today will see China Mobile Ltd. (NYSE: CHL), which operates the country's biggest mobile phone network, become the first customer of Nokia's AirScale basestation, which was unveiled at this year's Mobile World Congress in Barcelona.
The AirScale technology is intended to provide support for a number of network technologies and has been described as "5G-ready" by Nokia. By taking advantage of cloud technologies, the device is supposed to offer greater flexibility to operators faced with surging demand for mobile data services.
In a statement, Nokia said it would also provide additional elements of its mobile radio access and core portfolio to China Mobile, as well as fixed access, IP routing and optical transport, customer experience management, operational support system (OSS) and third-party products.
"This is a highly significant agreement with our longstanding partner; it strengthens Nokia's position as a leading provider of next-generation technologies in China, and reflects our larger footprint in the country following the acquisition of Alcatel-Lucent," said Mike Wang, the president of the joint management team of Nokia Networks and Alcatel Shanghai Bell, in a company statement.
Nokia faces strong competition from local vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) in the Chinese market, where it is also being challenged by Sweden's Ericsson AB (Nasdaq: ERIC).
Nevertheless, Nokia CEO Rajeev Suri has previously downplayed concern about economic setbacks in the Chinese market this year, insisting Nokia's position as the leading Western vendor could translate into fresh opportunities. (See Nokia Already Boosted by AlcaLu, Says Suri.)
Sales to China accounted for about 11% of the €5.2 billion ($5.9 billion) that Nokia generated in revenues during the first three months of 2016 but were 5% lower than in the year-earlier period.
China Mobile has become an even more dominant mobile player in China since the introduction of 4G technology and claimed to serve about 834 million mobile customers, including 377 million 4G subscribers, in April.
Along with service providers in other parts of the world, all three companies are now eyeing 5G technology in expectation of an official standard being ready for rollout in the 2020 timeframe.
— Iain Morris, , News Editor, Light Reading