Ericsson is slowly building its wireless business by scooping up parts of struggling Nortel.
Ericsson announced Wednesday that it has won a bid to buy Nortel Networks' North American GSM business for $70 million in cash. The Swedish communications giant went into the deal with a partner, Austria-based Kapsch CarrierCom, which itself spent $33 million to buy Nortel's GSM operations in Europe and Taiwan.
This marks the second major deal in recent months between Ericsson and Nortel. In July, Ericsson won another bid to pay $1.13 billion for Nortel's CDMA and LTE wireless technologies.
GSM (Global System for Mobile communications) is one of two technologies used for mobile phones. It's the standard in Europe and is dominant around the world, while CDMA (Code Division Multiple Access) is more common in the United States. In recent years, however, GSM has grabbed a larger footprint among North American carriers.
Ericsson already holds a strong slice of the global GSM market, especially in Europe, and has been eager to expand its grasp in North America.
On its end, Nortel has gradually been selling its wireless operations as a way to stay afloat in the midst of declining business and rising debts after declaring bankruptcy almost a year ago. On Tuesday, the company announced it would sell its Metro Ethernet operations to telecom equipment maker Ciena.
As part of the purchase, Ericsson will bring on more than 350 Nortel employees in North America. With the addition of Nortel's business and a recent deal with Sprint, North America will become Ericsson's biggest operation, said the company, jumping to 14,500 employees from just 5,000 at the beginning of 2009.
Ericsson noted that its entire North American business captured revenue of around $2.7 billion in 2008, mostly from sales of GSM and WCDMA (Wideband CDMA) equipment and services. Nortel's North American GSM business generated around $400 million in 2008.
No date was given for closing the deal, which is subject to the usual regulatory approvals in both the U.S. and Canada.
Nortel Networks CEO Mike Zafirovski
(Credit: Nortel Networks)Nortel Networks CEO Mike Zafirovski, who led the company into bankruptcy protection earlier this year and oversaw the sell-off of its wireless assets to Ericsson, will reportedly leave Nortel within weeks, according to a Wall Street Journal report citing "people familiar with the matter."
Nortel representatives did not immediately respond to e-mail seeing confirmation of and comment on the report.
Zafirovski was hired in 2005 to help turn around the company, much like he had done for Motorola's cell phone division. Initially, he had some success building profits from selling wireless gear to U.S. operators. Under his leadership, Nortel invested in new technology, and the company was preparing for the next wave of wireless networks. But then the economy tanked, and phone companies started to pull back on spending, which resulted in a sharp revenue drop for Nortel.
Once a giant in wireless gear, Toronto-based Nortel filed for bankruptcy protection in Canada and the U.S. earlier this year. And just last month, Ericsson cast the $1.13 billion winning bid in an auction for Nortel's wireless assets, picking up its cash cow, it's CDMA and next-generation LTE wireless technologies. That purchase virtually ensured that Nortel would be selling off the rest of its businesses, instead of reorganizing into a smaller company, making Zafirovski's departure someone inevitable.
Reuters is reporting that Nortel representatives on Friday appeared before a Canadian government committee to answer questions about the sale to Ericsson, which was opposed by BlackBerry maker Research In Motion, also of Canada. "It covets Nortel's next-generation LTE--or "long-term evolution"--wireless assets, which are being licensed as part of the Ericsson transaction. It has argued it was effectively prevented from bidding on them by Nortel," Reuters says.
CNET News reporter Marguerite Reardon contributed to this report.
Ericsson cast the $1.13 billion winning bid in an auction for the wireless assets of bankrupt Nortel Networks, the companies said Saturday.
The Swedish telecommunications giant picked up Nortel's CDMA and next-generation LTE wireless technologies. As part of the agreement, at least 2,500 Nortel workers supporting CDMA and LTE will be offered jobs at Ericsson.
CDMA, or code division multiple access, is one of two major networks operating in the U.S. and is used by Verizon Wireless and Sprint Nextel. LTE, or Long Term Evolution, is 4G wireless technology that will potentially replace today's mobile networks.
"This deal, along with our recently announced Sprint service agreement, truly positions Ericsson as a leading telecoms supplier in North America," Ericsson CEO Carl-Henric Svanberg said in a statement.
The purchase includes the CDMA contracts with Verizon and Sprint, as well as with U.S. Cellular, Bell Canada, and Leap, Ericsson said.
Ericsson was one of three bidders in Friday's auction. Nokia Siemens Networks and private equity firm MatlinPatterson were its competitors.
In mid-June, Nokia Siemens offered $650 million for Nortel's assets. That offer set others into motion and led to the auction.
"Our final offer for Nortel's assets represented a fair price, and we did not enter this process with a win-at-any-cost mindset," Bosco Novak, Nokia Siemens' chief markets operations officer, said in a statement.
Ericsson's bid is still subject to bankruptcy court approval in the U.S. and Canada.
The purchase virtually ensures that Nortel will sell off the rest of its businesses, instead of reorganizing into a smaller company.
"Nortel remains focused on finding the right buyers for our other businesses," Nortel CEO Mike Zafirovski said in a statement.
Once a giant in wireless gear, Toronto-based Nortel filed for bankruptcy earlier this year.
Nortel was founded in 1895 as Northern Electric and Manufacturing and supplied telecommunications gear for Canada's young telephone system. At the height of its glory days about 10 years ago, Nortel was worth $250 billion and had more than 90,000 employees.
Nokia Siemens Networks will buy Nortel Networks' wireless technology business for $650 million.
Struggling Nortel, a one-time giant in telecommunications equipment, had filed for Chapter 11 bankruptcy in January in hopes of reorganizing. But that is unlikely now.
Nokia Siemens said Friday that it will use Nortel's CDMA and LTE technology to expand its presence in North America. CDMA, or code division multiple access, is one of the two major networks operating in the U.S. and is used by Verizon Wireless and Sprint. LTE, or Long Term Evolution, is 4G wireless technology that will potentially replace today's mobile networks.
"This agreement provides an important strategic opportunity for Nokia Siemens Networks to strengthen its position in two key areas, North America and LTE, at a price that makes good economic sense," Nokia Siemens CEO Simon Beresford-Wylie said in the statement.
As part of the deal, about 2,500 Nortel employees in the U.S., Canada, Mexico, and China can keep their jobs. Nortel said this represents a "significant portion" of the workers associated with that part of its business.
"Maximizing the value of our businesses in the face of a consolidating global market has been our most critical priority. We have determined the best way to do this is to find buyers for our businesses who can carry Nortel innovation forward, while preserving employment to the greatest extent possible," Nortel CEO Mike Zafirovski said in a statement.
Toronto-based Nortel also said that it is working toward selling off the other parts of its business and that it is applying to be delisted from the Toronto Stock Exchange.
The deal with Nokia Siemens, which is expected to close in the third quarter, must be approved by both U.S. Bankruptcy Court and the Ontario Superior Court of Justice.
Nortel was founded in 1895 as Northern Electric and Manufacturing and supplied telecommunications gear for Canada's young telephone system. At the height of its glory days about 10 years ago, Nortel was worth $250 billion and had more than 90,000 employees.
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