Start at the end to try to understand Nokia Alu deal

Identifying the end game for a Nokia/ Alcatel-Lucent merger, and a few sticking points along the way

NokAlu seemed like the story that would never die. So when Bloomberg released another of its “sources close to the deal” pieces last night journalists could be forgiven for raising an eyebrow. Especially as the story intimated that Nokia was trying to buy Alcatel-Lucent’s wireless business away from the rest.

Why would it want to do that, when surely the IP and Cloud businesses would be much more complementary? But then this morning came confirmation from Nokia that yes the companies were indeed talking, but in fact about a complete merger. So it’s game on.

If you look at a Nokia Alcatel-Lucent deal there is a lot, a lot, a lot of product overlap. That is obvious. So any merger would need to see the two operating units come together quickly to settle on not just a common product line, but first to define a common strategic direction.

This doesn’t look like a merger that could run very well with two ghost entities inside a corporate shell – two sets of RAN products, two sets of supply chains, two sets of service organisations, R&D budgets etc etc And why would you want to merge along those lines?

Surely the only point of a merger would be to create a genuine “end-to-end” (so shoot me) player with the scale of Ericsson, Huawei and (in the relevant areas) Cisco, and also to be able to respond to new threats emerging from the rapidly changing OpenX (Open Source, OpenDaylight, OpenNFV, OpenFlow etc) telco cloud world.

So there are going to be some hard decisions here. Of course I’m only a humble journalist and have zero knowledge of this deal, but these strike me as some of the clashes and decision points that a merged company would run into and up against. In the time honoured tradition, I offer no answers, but there may be some useful guides here as to what to think about.

Radio access

Obviously as straight competitors, here there’s a great deal of overlap, but some synergy too.

In terms of overall strategy Nokia has been very clear about its re-use of code and software across its macro to small cells – with the Flexi Radio and FlexiZone (small cell) products on essentially the same silicon.

Alcatel-Lucent has forgedmore clear ground for itself in small cells, with consumer, enterprise and metro products as well as its integrated antenna lightradio. A recent small cell tie up with Qualcomm was seen as highly strategic, with a series of product announcements in different classes.

Neither company does its “own” WiFi (as per Ericsson buying BelAir) so WiFi integration/OEM could continue with the likes of Ruckus.

In terms of strategic direction, with Alcatel-Lucent and Nokia both committed to Cloud RAN and looking at how to virtualise radio elements then there is a decent strategic fit. It’s not as if you are trying to put the vRAN-averse Ericsson together with either of these others. Nokia is probably further down the road in terms of committing to base station intelligence via Mobile Edge Computing, but although Alu did not sign up for the MEC it is committed to edge computing – just not at the base station. Not a huge deal.

Both companies have pushed hard in 5G. Alcatel-Lucent is exploring a new air interface on the Filtered OFDM, Nokia has looked at different wavebands and other 5G enabling techologies. To be honest, 5G is probably the least worrisome bit of this deal.

Customer-wise, obviously Nokia has many more LTE radio wins but Alcatel-Lucent clearly has important LTE customers in the USA and now in China (where Nokia has also done well recently, to be fair).

Backhaul

Nokia exited backhaul and maintains a sell-partnership arrangement with DragonWave, which bought certain of it microwave assets. Alcatel-Lucent has some microwave assets of its own and has also put together a partner “ecosystem” for other elements – especially for metro and small cell requirements.

IP/routing

Alcatel-Lucent obviously has a whole space that Nokia doesn’t play in. Nokia does have a long-standing and seemingly secure partnership with Juniper Networks, especially as part of its TelcoSecurity messaging. Where would that head in a merged company?

OSS/planning/optimisation/automation

Here again is a question of  a mix of some in-house capabilities and some established partnerships. Strategically a NokAlu would still be able to talk the the same games of intelligent, adaptive networks, but you have the Motive Analytics, optimisastion and CEM-facing stuff from Alu head to head with the NetworksPerform customer and analytics data from Nokia. Where there are partners you can go best of breed, where you have your own product lines, installed with customers (although often as a service) that’s more tricky

SDN-NFV

Alu may have made the greater steps into the market with the CloudBand and Nuage investments, and some high profile hires as well. You’d have to say with its cloud presence would surely go forward into  a merged company, with a great deal of its smarts in Orchestration and SDN/control remaining in play. Meanwhile Nokia has virtualised its complete core, is moving into the RAN and is in lots of NFV POCs as well, and has at least talked up Cloud. So it is far from the passive partner here.

Mobile Core

More head-to-head competition in the EPC and cEPC area, as well as the strategically important areas for their customers such as IMS and VoLTE and VoWiFi capabilities.

R&D

You would be bringing together the whole heft and history of Bell Labs with Nokia’s Finnish and German (ex-Siemens) research centres. Bell Labs has been defining Alu’s future pathways – can that body be turned to the will of another new master? That could be a real wrench for a proud organisation. Or it could invigorate. That will surely be about leadership and culture as to which way that falls.

So what may happen?

You have to start with what the end game looks like for those driving the deal. That must be a global, at-scale competitor for Ericsson and Huawei and for whatever new threat emerges from the changing open-source, open standards telco cloud world.

Crucially and most urgently  it must therefore be a company with absolute clarity on its Cloud, SDN and NFV direction : these are bets that operators are laying right now as a matter of economic and strategic urgency. Two to three years of fudge is going to help no-one.

It has a little longer to define its advanced and 5G wireless vision.

In any case let’s assume that the money behind the deal is happy to have Rajeev Suri as the merged entity’s CEO, and why wouldn’t it be? Suri has shown he is very good at saying goodbye: he said goodbye to large amounts of people, business units and in fact revenue streams at NSN (as was), in order to get a leaner Nokia Networks going forward in one direction – focussed on Mobile Broadband. Likely he knew then that this wasn’t the finished picture for Nokia. At some point the company itself would have to find a way to grow back the limbs it had just surgically removed. But he has shown he is not afraid to make the big call.

The company has also shown it can incorporate technology where it needs to – witness its current radio portfolio leaning heavily on the Motorola assets it bought.

Alcatel-Lucent’s Shift Plan, which has brought financial discipline as much as anything, has in a sense readied the company for sale. It was just entering the next phase so it’s unfair to judge on the development of its plan but give it credit for those gains in Cloud. You’d think that Nokia must want a part of Bell Labs and of the company’s US operators’ presence, as well as its Cloud know-how. What happens in France to the “old Alcatel” must be less clear.

Simple net-net: A Nokia-looking company in  terms of radio and core, optimisation and a more heavily Alu flavoured company in terms of IP and Cloud.

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