Nokia and Alcatel-Lucent Announce Potential Engagement

Network Virtualization

Who knew Nokia was still a thing, after Microsoft bought it? Well, as it turns out, Microsoft only bought the Devices and Services division. Nokia still has a number of other divisions, including NSN (the network infrastructure division), HERE (maps and location-based services), and Advanced Technologies (a licensing and development arm). Microsoft has been paying Nokia a big wedge of cash over the last two years to license Nokia’s HERE services, and the contract extends for at least two more years. For Nokia, getting out of the phone market was an astute move. It had lost the handset war and had moved from a position of dominance to being an also-ran. Its high-end Lumia phones, while nice, weren’t delivering an adequate return on R&D investment when going head to head with the now-dominant Apple and Samsung handsets.

In hindsight, it could be argued that the handset division was always a bit of a sideshow for Nokia. Handsets were a revenue-generating experiment that funded what the company felt was its core competence: network services. The fate of the phone division wasn’t seen as a win for Nokia, but the culling of a former giant.

Today, we’re seeing Nokia’s first big move in its post-phone world, and it is a bold one. In the wake of intense speculation, Nokia has announced in a joint statement that it is indeed in advanced talks to buy out Alcatel-Lucent. There is also speculation that it is about to sell its mapping division, with Oracle, UBER, and others touted as possible buyers. I think that it may be a good buy for Microsoft, as it is paying Nokia a licensing fee for use of the service. Microsoft may just buy it, capex the cost, and fully integrate it. This is Microsoft’s core competency as a business, after all.

This would result in a highly focused company with a single core market, one in which it has done very well. A buyout by Nokia of Alcatel-Lucent makes sound strategic sense. Nokia is a well-known name in Europe and Asia (Japan), even if it’s mostly known for phones in the US. Alcatel-Lucent is known and is strong in the US, and the combined firm would have a strong global position. It is also a good move for Alcatel-Lucent, which was known to be suffering a couple of years ago.

The statement has the usual hedges about there being “no certainty at this state that these discussions will result in any agreement or transaction.” However, for the company to release this statement means that negotiations are far along.

This merger would enable Nokia to compete head-on with Ericsson and Huawei for carrier customers. All three companies are very big in telco land, accounting for up to 80% of the global market. Purchasing Alcatel-Lucent would give Nokia a further 10% of the space and a dominant position. The merged company would also be better positioned in the race to 5G.

Now, I wonder what color hat I should buy for the wedding?

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