Summary
As far telecom acquisitions go, Ericsson has made a savvy deal for Nortel's North American CDMA technology, but more importantly, it has ensured that Verizon Wireless and Sprint Nextel will have a supplier to support its legacy CDMA network, but also assist it in migrating those networks to the next generation architecture - Long Term Evolution (LTE)
Analysis
It has been 9 years since the telecom meltdown began. Nine years since Nortel Networks was trading at $150 plus. How far the mighty can fall. But this is a relatively happy ending for Nortel's CMDA division and Ericsson.
By purchasing Notel's North American CDMA operations Ericsson has obtained some valuable technology and operations. After all, CDMA is the technology underpinning UMTS (3G) and LTE (4G) wireless. The acquisition will come with intellectual property (IP) which will either secure some competitive product advantages, earn it royalties, or increase Ericsson's IP bartering rights with other telecom manufacturers.
But most importantly, the acquisition secures supply and maintenance of Verizon Wireless' and Sprint's CDMA radios and switches which guarantees the operational continuity to those network carriers ongoing operations. If the Nortel division had been allowed to collapse and be shuttered, an important communications sector of the United States would have been at risk. I would almost dare saying this private sector deal was about as important and necessary to the nation's wireless communications infrastructure as saving General Motors is to the automobile industry. Nearly half of all Americans use either Verizon Wireless or Sprint as their wireless service providers.
In return for assuming the risks associated with the acquisition, I believe Ericsson will be adequately rewarded. It has added two major North American operators to its wireless infrastructure customer list which will help global its volume and prestige. It will have a decade maintenance contracts on existing equipment as a source of added revenue. But, most importantly, it has gained an inside track on the multi-billion dollar long term supply of next generation wireless cell site and core network equipment to both companies. And, at the end of the day, management at Verizon Wireless and Sprint will return the favor.
