The €15.6 billion Nokia marriage to Alcatel-Lucent appears on the surface to have been inevitable and we wish that its success was just as inevitable. Europe will ostensibly have two strong networks suppliers (this plus Ericsson) to match those coming from China and the fairly moribund efforts in the US at companies such as Motorola.
In the end it is important to have companies that supply systems integration and a modicum of technology to network operators, but their health seems to be in direct contrast to those of their customers. In a climate where the consumer wants more bandwidth and better services, and where that expectation has got way ahead of technology’s ability to deliver it, either the operator will pay too much, and fail, leading to fewer clients for the integrator, or pay too little and leave too little profit for the integrator.
Over the 30 years or so that we have been watching this game, there has been a massive thinning of suppliers in this market and few investors felt confident being invested in either Alcatel-Lucent or Nokia – perhaps together they will take on an air of invincibility – but we expect not. This new combination must attack Cisco as much as Ericsson and Huawei, as the world becomes increasingly a single connected series of internet segments – wired or wireless.
Instead the companies driving innovation are the chip providers and that’s where profits have been seen lately – Qualcomm, Broadcom, Intel and MediaTek seem to buy up any start-up which finds a new way of doing things, and it is their names which are associated with delivering 1,000 times as much data over tomorrow’s wireless networks rather than the systems integrators.
The cultural differences between Nokia and Alcatel are enough to make the integration of this merger tough to pull off, but we’ll leave the deeper analysis of that dimension to financial and cellular experts. In the area that Faultline stalks, that of video over digital networks, we have in Alcatel a strong player in CDNs, G.Fast access networks, GPON deployments, and seamless WiFi, all vital for increasing video delivery speed over the internet. It is also behind many of the Mediaroom IPTV deployments in terms of DSLAM and ISAM equipment, network upgrades, software management and customer care, billing and back end systems.
Nokia had all of that at one time or another, but sold it off to focus on the cellular opportunity. The worrying things is that Nokia management remains in charge of the merged entity and a laser focus on cellular would mean the failure of the operation.
The world has turned and WiFi is the new black, and increased fixed line access network capacity is vital for WiFi, video to the home and small cell deployment and all the talk about 5G is nothing but posturing.
Nokia in its networks division has behaved like a small boy in a land of giants and has rightly focused its efforts. But with this merger it has to realize it has a brief period of time when it can bully others. If it behaves like a small boy in a grown up body, it will fail.
The merger release made one point about video saying that “Consumers are looking to access data, voice and video across networks of all kinds. In this environment technology that used to operate independently now needs to work well together. That is not always the case today, but together Nokia and Alcatel-Lucent are uniquely suited to helping telecom operators, internet players and large enterprises address this challenge.”
Well the simple truth is that internet players don’t pay for bandwidth, so they don’t need the new Nokia’s help, and enterprises are not yet sure of what they want in video, which leaves only the telecom operators with a genuine hunger for a video strategy. So far Nokia’s only contribution in video is a single trial which suggests that broadcast TV can be sent over LTE Broadcast, something that broadcasters took umbrage at immediately.
And immediately Nokia has put its mapping and location business HERE on the block, not strictly up for sale, but looking at a review of strategic options. The last thing that Nokia wants to be doing is selling off assets that give it an excellent tactical advantage in a market, simply because it is not currently paying its way. HERE is disappointing financially, but it is streets ahead of Google Maps and Apple failed abysmally to compete with it. It is true that location based services have not lived up to expectation, but if taking a world technology leader and selling it off is to typify the approach of the new management, then they are very much likely to end up throwing out the baby with the bathwater across the board.
If you take everything that is good about Nokia and everything that is good about Alcatel and put them together, they don’t just float, they dominate. If you sell off the crown jewels, revenues will fall, and the two will sink.
Nokia probably has 2 years to turn this ship around, and it will either be the end of Nokia, sold off cheaply to Ericsson after abject failure, or it will find a new confidence. Culturally Nokia is too Finnish, and has not had success in making mergers work. It never takes advice, it alienates US operators and its arrogance leaves a sour taste in the mouth, at least it did prior to the sale of the handset division. af was on the right track chasing down all IP systems, but unable to find the efficiencies and urgency to complete the job in time to please investors. We predict failure for this merger, but privately are crossing our fingers and hoping for success.