Specifically, Alcatel is buying Nortel's Universal Mobile Telecommunications System (UMTS) radio access equipment, including base stations, radio network controllers and operation and administration software. UMTS is one of the third-generation (3G) mobile-phone technologies that provide faster speeds for new data applications on mobile phones. UMTS uses W-CDMA (Wide-Band Code Division multiple access) as the underlying standard and is often marketed as 3GSM, since it was designed to replace GSM (Global System Mobile communications), a widely used second-generation wireless technology.
Most of Nortel's employees working in the UMTS business unit are expected to be transferred to Alcatel, the companies said.
With this deal, Alcatel will become the world's third-largest supplier of UMTS radio access products, behind leaders Ericsson and Nokia Siemens Networks.
"We are clearly poised to become a strong No. 3 in UMTS," Marc Rouanne, president of Alcatel's mobile communications activities, said in a statement. "Combined with our strong GSM/EDGE position, our early leadership in WiMax and our strong commitment to LTE (Long Term Evolution), this acquisition will add further momentum to Alcatel's broadband wireless access strategy."
The addition of Nortel's UMTS business will give Alcatel 14 new customers, including Vodafone in Spain, Italy, Portugal and Britain; as well as Orange in France, Belgium, Slovakia and Poland. It will also boost Alcatel's presence in Asia, particularly South Korea and China, where the company already has a strong presence with equipment used to build 2G and 2.5G networks based on GSM and EDGE (Enhanced Data for GSM Environment) technology.
The deal comes as Paris-based Alcatel plans to merge with the American telecom equipment company Lucent Technologies, which has CDMA (Code Division Multiple Access) and EV-DO (Evolution Data Optimized) wireless infrastructure products used mostly in the U.S. market. Shareholders are expected to vote on the deal Thursday. Alcatel said it will work with Lucent to plan the integration of the Nortel UMTS business with existing Lucent and Alcatel wireless technology and product portfolios.
The deal will help Nortel slim down and focus its strategy. Nortel has struggled over the past few years and has been embroiled in an accounting scandal that forced it to restate several quarters of earnings.
The divestiture of its UMTS business, which has been unprofitable for Nortel, should help the company focus more on new growth opportunities. While Nortel plans to keep its existing GSM products, used mostly in Europe and Asia, and its CDMA/EV-DO business, which is used primarily in the U.S., it will also focus on new wireless technologies, such as WiMax.
Analysts are encouraged by the Nortel UMTS sale, but they cautioned investors that Nortel still has a long way to go.
"Nortel is making difficult but necessary changes and we are encouraged that it is taking action on its plan to rethink its business operations from a strategic point of view," Mark Sue, an analyst with RBC Capital Markets, said in an investor note published Friday. "We note however that the pace of recovery will take some time."