5G and Beyond

Nokia Reels In $3.5B 5G Deal With T-Mobile US

Nokia has struck a $3.5 billion, multi-year agreement to build a "nationwide" 5G network for T-Mobile US in what represents its biggest 5G deal so far and one of the industry's largest 5G deals to date.

The Finnish equipment maker -- which champions its "end-to-end" capabilities over those of Swedish rival Ericsson AB (Nasdaq: ERIC) -- will provide a range of 5G products to the US operator, including radio platforms, core network technology and management systems.

Nokia Corp. (NYSE: NOK) is giving few other details away at this stage, including the exact duration of the contract and what percentage of the T-Mobile US Inc. network it covers, but said the financial impact would start to become apparent in its third-quarter results.

It will support the 600MHz frequencies that T-Mobile picked up in last year's auction as well as much higher 28GHz spectrum. The lower frequency bands are assumed to be much better for wide-area coverage and in-building services, while the 28GHz airwaves can handle much faster connections.

T-Mobile, which is trying to execute a merger with Sprint Corp. (NYSE: S), has previously talked up plans to build a "nationwide" 5G network by 2020 as it battles larger rivals AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) for mobile broadband leadership. It plans to spend between $4.9 billion and $5.3 billion in overall capital expenditure this year. (See 5G in the USA: Where We at With Mobile?, Is T-Mobile's 5G Plan Just a Pipe Dream? and T-Mobile & Sprint: Marriage made in hell.)

"We are all in on 5G," said Neville Ray, T-Mobile's chief technology officer, in a press release from Nokia. "Every dollar we spend is a 5G dollar, and our agreement with Nokia underscores the kind of investment we're making to bring customers a mobile, nationwide 5G network. And together with Sprint, we'll be able to do so much more."

The deal should help to address some investor concern about Nokia's 5G competitiveness after results for the second quarter showed a worrying decline in margins at the all-important networks business. (See Profits Crash at Nokia's Networks Biz.)

CEO Rajeev Suri, who has continued to present a bullish assessment of Nokia's 5G prospects in the second half of this year, blamed shrinkage in gross margins on customers funding 5G upgrades from older 4G budgets. Nokia spokespeople declined to comment when asked if the T-Mobile deal fell into this category.

However, Suri has brushed off suggestions Nokia is losing market share, hinting major deals were in the pipeline before today's deal with T-Mobile was announced.

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Nokia has seemed in recent months to fall behind Ericsson, whose efforts to slash jobs and pump money into research and development have led to profitability improvements in the first half of the year. (See Ericsson's R&D Workout Piles 5G Pressure Onto Rivals and Ericsson Back in Profit After Fierce Cuts & 5G Action.)

Notably, Ericsson had also managed to replace Nokia as a supplier of radio access network gear to Deutsche Telekom, T-Mobile's parent company, in Germany in late 2017. (See DT Ditches Nokia From Its German Radio Access Network.)

But Nokia has long insisted that its expertise in all areas of 5G -- and not just on the mobile networks side -- will give it a major advantage, and Ericsson has yet to announce a 5G deal worth as much as Nokia's contract with T-Mobile.

"This reflects the rationale of Nokia acquiring Alcatel-Lucent," said Phil Twist, Nokia's vice president of marketing and communications, referring to the €15.6 billion ($18.2 billion, at today's exchange rate) takeover in 2016 that gave Nokia capabilities it had previously lacked in fixed, core and IP network technology. "We wanted that for end-to-end deals and this reinforces its value. This means we can provide a network solution rather than network building blocks."

Analysts have also recognized that Nokia's software business is performing well as Ericsson continues to wrestle with a turnaround at its ailing digital services unit.

"Two percent revenue growth at constant currency for Nokia Software is encouraging," said James Crawshaw, a senior analyst with Heavy Reading, in a comment on Light Reading's website about Nokia's recent software performance. "That is a turnaround from a 3% organic decline in the first quarter (adjusting for the Comptel acquisition) and compares with a 12% decline for Ericsson Digital Services in the second quarter."

Nokia announced a €347 million ($405 million) cash takeover of Comptel, a communications sector software specialist with hundreds of OSS and BSS customers, in February last year.

US operators have generally been more aggressive than European service providers when it comes to 5G planning. AT&T, for instance, plans to make 5G services available in parts of 12 US cities by the end of this year.

Yet despite the hype surrounding virtual reality, connected cars and other new types of service, 5G will first be used in both Europe and North America merely to provide higher-speed broadband connections and relieve capacity on congested 4G networks. (See 5G Still More Like Rocket Fuel Than a Mission to Mars.)

— Iain Morris, International Editor, Light Reading

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