Nortel now ‘finished’ with GSM sale: Forrester

Telefonaktiebolaget LM Ericsson has agreed to buy another piece of Nortel Networks Corp.’s carrier wireless business for US$70 million.


Toronto-based Nortel announced Wednesday Ericsson was one of the winning bidders of an auction of Nortel’s Global System for Mobile Communications (GSM) business.
On Nov. 13, Ericsson closed the acquisition of Nortel’s other carrier wireless assets, including the code division multiple access (CDMA) base stations and licensing of the Long Term Evolution (LTE) patents.  In Canada, Ericsson has hired about 900 Nortel CDMA workers, and another 1,600 elsewhere.
“What was Nortel is finished,” said Brownlee Thomas, Montreal-based principal analyst at Forrester Research Inc. “It’s gone.”


The other company acquiring Nortel GSM assets in the deal announced Wednesday is Vienna-based Kapsch AG, which is paying US$30 million. If approved by courts and regulators, Ericsson would get Nortel’s North American GSM assets while Kapsch would get those units in Taiwan.
The US$103 million sale is part of Nortel’s efforts to sell its major business units to pay billions back to creditors, including corporate bond holders, former employees waiting for severance payments and pension funds. Nortel entered bankruptcy protection Jan. 14 after losing money most years since 1998.


Nortel and the buyers are scheduled to seek court approval of the deal Dec. 2. Kapsch and Ericsson plan to offer jobs to a total of 680 Nortel workers worldwide.

Of those, Ericsson Canada president Mark Henderson estimated fewer than 10 would be based in Canada.
“This really pertains to the existing GSM business in North America and that is in the United States,” Henderson said. “Along with the recent acquisition of (Nortel) CDMA and LTE, the emphasis is on Ericsson’s commitment to the North American market.”
Thomas said the deal could lead to opportunities for Ericsson Canada down the road.
“They didn’t get anything in this for Canada but they use it to leverage their way in,” she said. “The biggest opportunity would be to help Bell and Telus with going to the next level,” referring to their high-speed packet access (HSPA) network, which was completed earlier this month.

“Each bidder will assume the relevant customer contracts in their specified regions as well ad the products, specified patents predominantly in the GSM/GSM-R business and non-exclusive license of other relevant patents,” Nortel stated Wednesday.

In addition to its GSM, CDMA, metro Ethernet and optical units, the other major unit Nortel has arranged to sell is its enterprise division, which makes routers, switches, private branch exchanges (PBXs), firewalls, phones and unified communications. If regulators approve, Nortel’s enterprise unit will go to Basking Ridge, N.J.-based Avaya Inc. – which was spun off from Lucent Technologies Inc. in 2000 – for US$951 million.
Although Nortel had nearly US$3 billion in cash Jan. 1, the company was still losing money, revenues were dropping due to the recession and the due date for huge interest payments was looming. The chief executive officer at the time, Mike Zafirovski, decided the company would file for creditor protection. Zafirovski, a former Motorola Inc. executive hired in 2005, resigned last summer.
His predecessor, retired U.S. Admiral Bill Owens, was CEO for about a year and was hired to clean up an accounting mess. Owens replaced Frank Dunn, who was dismissed with cause by Nortel’s board of directors in 2004. Dunn faces criminal charges in Canada of fraud affecting public market and falsification of books and documents. His case has yet to go to trial and the allegations have not been proven in court.
Nortel was founded in 1895 as Bell Canada Enterprises Inc.’s manufacturing unit.

Bell Canada gradually loosened its hold on the company, and by 1998 was a minority shareholder. That year, Nortel entered the enterprise data networking market with its US$9.1 billion acquisition of Bay Networks Inc. At that time, the company had about 80,000 workers.

In 2000, Nortel would bought more than 10 other, including Alteon WebSystems Inc., which made application acceleration products, for US$7 billion. That unit was sold to Tel Aviv-based Radware Ltd. for in March for US$18 million. 
In 2000 Nortel also bought: Qtera Corp. of Boca which made a 10 Gigabit per second optical networking product, for US$3 billion; Clarify for US$4 billion; Xros for US$3 billion; and CoreTek Inc. for US$1.3 billion.

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