Industry analysts are speculating that Canadian vendor Nortel may be planning to spin off its UMTS business following rumours of organisational changes within the company.

Nikos Theodosopoulos, analyst with investment bank UBS, said that he has received information which suggests that Nortel has organisationally separated the GSM and UMTS access businesses, “a move that may presage a potential spin-off/disposal of the UMTS access business”.

Nortel is one of the largest vendors which has remained noticeably uninvolved in the recent spate of equipment manufacturer mergers. The recently announced four year strategic alliance between Nortel and Microsoft as well as a focus on enterprise channel partnerships, indicate that the enterprise space continues to be an area of increasing focus.

Motorola is another manufacturer that has not participated in any of the mega-mergers that have seen Lucent and Alcatel and Nokia and Siemens come together in recent months. But the vendor yesterday formed a UMTS kit partnership with Chinese vendor Huawei, which could be an indicator of future strategy.

Nortel has also been wrong-footed this week by the departure of the vice president and general managers for WiMAX and Converged Core Networks including IMS. No replacements have yet been identified and the developments could put Nortel in a predicament as UBS points out that both IMS and WiMAX are two of three key strategic areas of focus for Nortel.

The Austrian mobile carrier Hutchison 3G (3), which is headquartered in Vienna, is relying on state-of-the-art technology from Siemens to build out its existing W-CDMA network. The carrier currently provides coverage for around 98 percent of Austria’s population and offers W-CDMA services to around 50% of the country. By the end of 2007, plans call for some 95 percent of the country to benefit from the advantages of high-speed data access (HSDPA) technology – high throughput and transfer rates. The agreement between Siemens and 3 is based on a turnkey contract comprising supply of the W-CDMA technology and a Managed Services package. The order is worth an amount in the multi-digit millions.

Hutchison 3G is expanding its W-CDMA network in Austria and at the same time integrating today’s fastest transport technology for wireless networks. High Speed Downlink Packet Access (HSDPA) is a method that speeds up data transmission in W-CDMA networks by eight to sixteen times. The transfer rates are between 2.4 and 7.2 megabits a second, with a theoretical maximum of 14.4 megabits a second. Networks equipped with this data accelerator offer major benefits to subscribers, who can dial into the Internet using their mobile phone or other mobile end device and use broadband multimedia services such as Mobile TV on the road. Long waiting times are a thing of the past thanks to HSDPA.

“There’s nothing faster or better at present: HSDPA is the accelerator for W-CDMA networks and vital to ensuring that the latest broadband applications run smoothly. A key distinguishing feature of our solution is the fact that a software upgrade is enough to implement it in the network,” said Christoph Caselitz, President of Mobile Networks at Siemens Communications.

A Managed Services package is part of the agreement. Siemens will plan, set up and partially operate its customer’s network. The network operation service comprises network management and monitoring as well as maintenance work. Daniel Rui-Felicio, head of Carrier Service at Siemens Communications, sees a global trend: “More and more operators are putting the operation of their networks in our hands. They are doing that for two main reasons: They can keep their eyes focused more closely on their core business, and they know exactly what costs they can expect in the long term.”

Hutchison 3G is the first carrier to sign a Managed Services agreement with Siemens in Austria. Competitors are also to be able to access the network. “Unlike some competitors, as a pure 3G company we want to provide a genuine full-coverage W-CDMA network. We are convinced that an open W-CDMA platform for rural regions will be a great asset in the future and a benefit to the Austrian economy,” commented Berthold Thoma, 3′s CEO.

New global network leader for fixed-mobile convergence

- Companies form Nokia Siemens Networks with 2005 calendar year pro forma revenues of EUR 15.8 billion.

- 50-50 joint venture to consist of Nokia’s Networks Business Group and Siemens’ carrier-related operations for fixed and mobile networks.

- Broad scale advantages, leading “quadruple play” product portfolio and worldwide presence.

- Market strength and leading position in fixed-mobile convergence.

- Estimated cost synergies of EUR 1.5 billion annually by 2010.

- Simon Beresford-Wylie to become chief executive officer and Peter Schönhofer to become chief financial officer.

Nokia and Siemens today announced that they intend to merge the Networks Business Group of Nokia and the carrier-related operations of Siemens into a new company, to be called Nokia Siemens Networks. The 50-50 joint venture will create a global leader with strong positions in important growth segments of fixed and mobile network infrastructure and services.

The combined company is positioned to lead the development and implementation of revenue-generating and cost-saving products and services via its scale and global reach. Nokia Siemens Networks will have one of the world’s best research and development teams with the ability to invest in next generation fixed and mobile product platforms and services. The new company will have a world-class fixed-mobile convergence capability, a complementary global base of customers, a deep presence in both developed and emerging markets, and one of the industry’s largest and most experienced service organizations.

“We believe the partnership with Siemens is the most effective way to build the scale and broad product portfolio necessary to compete globally and create value for shareholders,” said Olli-Pekka Kallasvuo, CEO of Nokia. “The communications industry is converging, and a strong and independent Nokia Siemens Networks will be ideally positioned to help customers lower costs and grow revenue while managing the challenges of converging technology.” Olli-Pekka Kallasvuo will serve as chairman of Nokia Siemens Networks.

“This joint venture is an important step to strengthen our position in the market sustainably and to enable us to offer the best state of the art converged technologies and services to our customers,” said Klaus Kleinfeld, CEO of Siemens. “This combination creates a leading industry player with immediate strength, excellent potential for growth and well-positioned to improve future profitability.”

Strong player with scale and powerful convergence portfolio

Based on the 2005 calendar year, the combined company had EUR 15.8 billion in pro forma annual revenues and is expected to start operations with 60,000 employees. Based on current market share data, it will be the second largest company in mobile infrastructure, second in services, third in fixed infrastructure, and the third largest in the overall telecommunications infrastructure market.
Nokia Siemens Networks will be able to offer its operator customers a comprehensive portfolio of fixed and mobile network products supported by a full range of professional services. The company’s portfolio will include Next Generation Network convergence products like IMS, 2G GSM/EDGE access, 3G WCDMA/HSDPA access, extensive mobile core, fixed broadband, transport, IPTV, LTE, WiMAX and low-cost mobile voice products tailored for emerging market operators.

Extensive synergy benefits

The estimated cost synergies of EUR 1.5 billion annually by 2010 are expected to come primarily from the elimination of overlapping functions, consolidation and better utilization of sales and marketing organizations, reduction of overhead costs, sourcing benefits, and greater efficiencies in R&D.
A substantial portion of these synergies is expected to be realized in the first two years. These changes are expected to result in a headcount adjustment over the next four years in the range of ten to fifteen percent from the initial combined base of approximately 60,000. Detailed headcount reduction assessments will be made as part of the integration planning process and subject to required consultation with employee representatives.

Both Nokia and Siemens expect the impact of the partnership on their respective EPS, on a pro forma basis excluding the restructuring charges, to be accretive by the end of 2007, assuming a closing by January 1, 2007.

Global company and leadership

Nokia Siemens Networks will have its operational headquarters in the Helsinki, Finland metropolitan area, and have strong regional headquarters in Munich, Germany, where three of the future five divisions of the new company will be based.

Simon Beresford-Wylie, currently Executive Vice President and General Manager of Networks at Nokia, will assume the position of chief executive officer immediately upon the closing of the merger. “Nokia Siemens Networks brings the two finest teams in the communications industry together at an unprecedented time of industry change,” said Simon Beresford-Wylie. “I know the power of the Nokia team and have a deep appreciation for the quality and spirit of the people of Siemens. Together, the collective Nokia and Siemens teams will be a powerful force in the industry as we pursue our future goals of providing unequaled customer satisfaction and of becoming the undisputed industry champion.” In addition to Simon Beresford-Wylie, Peter SchГ¶nhofer will assume the position of CFO. SchГ¶nhofer is currently a member of the executive board of Siemens AG Austria.

The transaction closing is expected to take place before January 1, 2007 and is subject to customary regulatory approvals, the completion of standard closing conditions, and the agreement of a number of detailed implementation steps. After closing, the financial results of Nokia Siemens Networks will be consolidated by Nokia and accounted for at equity by Siemens.