As rumours circulate of Nortel bondholders working on a deal to keep the company from breaking up and being sold off to competitors, the prime contender to buy its carrier wireless business says a foreign acquisition is the best option.
“We hear the stories about private equity wanting to come in and save Nortel,” said Sue Spradley, head of North American operations for Nokia Siemens Networks. “Believe me, I would like to save Nortel if it could be saved. Unfortunately this is a very difficult global environment.”
Spradley made her remarks to the Economic Club of Canada Tuesday at the Sutton Place Hotel in Toronto.
She joined Espoo, Finland-based Nokia Siemens Networks two years ago and is a former president of Nortel global services and operations.
The companies announced June 19 an agreement in which Nokia Siemens Networks would acquire for US$650 million Nortel’s carrier wireless business, which manufactures equipment using code division multiple access (CDMA) technologies and is also developing Long Term Evolution (LTE) products.
When it announced the agreement with Nokia Siemens Networks, Nortel also said it is in “advanced discussions” with other companies to sell its other units, including the enterprise division and the metropolitan Ethernet assets.
Since then, New York investment firm MatlinPatterson, which reportedly owns more than US$400 million worth of Nortel bonds, has said it wants to see Nortel continue operating, rather than sell off all of its units to competitors. Toronto-based Nortel, which has lost money nearly every year since 1997, has been operating under bankruptcy protection since Jan. 14.
“They’re working hard to stop the proposed sale to Nokia Siemens of the crown jewel of Nortel, which is the wireless communications division, in order to try to enable Nortel to reorganize their key businesses and hopefully emerge from bankruptcy protection,” Ronald Gruia, the Toronto-based Program Leader for emerging telecoms, at Frost & Sullivan, said in an earlier phone interview.
Matlin Patterson has refused to comment to Network World Canada.
The agreement with Nokia Siemens Networks – which is contingent upon Nokia Siemens Networks offering jobs to 2,500 Nortel employees – is a “stalking horse” bid, which means other firms could table offers of their own. The deadline for other bids is next Tuesday, and if anyone else does present a competing offer, a 24-hour auction is scheduled July 24.
Spradley said the Nokia Siemens Networks deal, if it goes through, will give employees peace of mind.
“They will start out from Day 1 knowing who their boss is, what their pay is, what their job is – versus waiting for the next shoe to drop,” Spradley said. “We’re the only bidder who can say that today with confidence.”
Gruia said if Matlin Patterson is able to acquire Nortel, either on its own or with others, the firm must act quickly.
“The problem is, any acquisition bid will be a debt for equity swap and the guys from Matlin Patterson have a really short deadline,” he said. “Timing is of the essence.”
NSN, which caters to telecom carriers, provides hardware, software and services. Products include switches, subscriber management software, digital subscriber line access modules,
“We now have over 75 full time employees and 100 contractors working with us” in Canada, Spradley said. “We’re doing something unique in Canada. We’re hiring. We’re growing and you don’t see that a lot in the telecom market. The acquisition of Nortel assets will help us continue to grow.”
The acquisition would give Nokia Siemens Networks carrier customers using CDMA, such as Verizon, Sprint, SaskTel and Bell Canada, Spradley said.
As for the LTE technology, this will be implemented outside of Canada first, she added.
“Globally where we see LTE being introduced in a faster fashion is Japan with NTT DoCoMo and in the U.S. There’s some talk of Korea.”
In Canada, Rogers Wireless offers High Speed Packet Access (HSPA) at 7 Megabits per second (Mbps), and Bell and Telus are collaborating on an HSPA network scheduled to debut next year. Rogers has yet to announce any LTE upgrade and when asked last month, CEO Nadir Mohamed would only say it will be a “few years.”
With HSPA, Spradley said, "the need to go to 4G is lessened” and the deployment will depend on when customers demand it.
But she said consumers downloading video will want fourth-generation networks.
“If you’re in an airport with your three-year old and the plane’s delayed, you pray that you have 4G technology. Because it means you can now download a video very quickly to your mobile phone and watch Elmo or whatever.”
Michelle Warren, president of MW Research and Consulting of Toronto, attended Spradley’s speech. She predicts it will be five to 10 years before LTE is offered in Canada.
Warren added it’s better for Nortel if Nokia Siemens Networks gets its carrier wireless business.
“That industry knowledge is worth volumes when integrating two organizations,” she said. “That’s where a lot of acquisitions can go south – when the cultural differences or cultural similarities are not addressed. As much as it breaks my heart as a Canadian to look at a non-Canadian organization acquire a Canadian icon, it’s probably a better move for Canada.”
Spradley said Nokia Siemens Networks wants to have the same market power in North America as it has overseas.
“Regardless of what happens, we’re hear to stay,” she said. “We have new customers coming on board, not yet announced, and we have existing customers with Telus, Videotron, Shaw and others that we want to continue to work with. We want to be here with our partners at Nortel with us, but we are here no matter what.”