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Nokia Communications and Alcatel-Lucent have confirmed that they are in “advanced discussions” regarding a potential merger.

The deal could still fall through, but the talks involve the Finnish communication company acquiring the French telecom equipment maker a public exchange offer or stock swap, according to a statement released by Nokia.

Speculations of a possible merger between the two firms have been going around for some time and had resurfaced again in December last year.

Nokia is looking to extend its offering in the cloud, software defined networking, network functions virtualization, and public safety space, according to the Julian Bright, senior analyst for analyst and consultancy firm Ovum Ltd.

He said a merger would benefit Alcatel-Lucent and Nokia as the telecom equipment vendor landscape continues to polarize between market leaders Huawei and Ericsson and smaller suppliers.

“Nokia’s challenge is to sustain its recent strong performance in a relatively stagnant market where mobile broadband is becoming just one aspect, albeit a key one of a much broader ICT landscape,” Bright wrote in an earlier blog. “While the operator sector seems to be consolidating along converged fixed-mobile lines, Nokia has only one wireless portfolio.”

On the other hand, he said, Alcatel-Lucent’s mobile broadband offering is limited because it lacks a legacy broadband wireless business and it has limited resources to develop new technologies.

He said a merger makes sense because of the following:

  • Nokia’s strengths in mobile broadband, OSS, global services, and mapping technology are a good fit with Alcatel-Lucent’s fixed network business (especially core network and IP routing) and developing SDN/NFV capabilities.
  • The combined company would challenge the growing dominance and market share of Huawei and Ericsson, instantly becoming a top three vendor and moving into the number two RAN supplier spot.
  • The merger would strengthen Nokia’s position in North America and China – two of its key markets.
  • The merged company would be well placed to meet the demand for converged network solutions a time when the operator sector is consolidating along converged fixed-mobile lines.
  • Together the two companies would be better equipped to extend beyond their traditional markets and create new revenue streams in areas such as enterprise.

However, the two companies should carefully “rationalize” the product lines as a full merger could create significant duplication in areas such as mobile broadband and small cells, said Bright.

“Maintaining two different product portfolios and servicing existing customers could counteract the benefits of increased scale,” he said. “Initially some exploratory form of collaboration that provides a more compelling offer for customers would be the low-risk option, and one that might prove more attractive.”

 



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