NSN

Nortel Ethernet auction: Ciena ups bid, NSN steps back

NSN released a statement that it did not submit the highest bid for the Nortel Ethernet assets, and that means Ciena won the bid with a higher offer than its straw-man previous bid—rumor says nearly $770 million.

We think this is a good thing for NSN because we doubt the symbiosis would have been as strong. NSN is not a marketing company, and NSN needs to leverage any Nortel asset win far beyond Ethernet in order to gain value. That’s unlikely, given that NSN doesn’t have much in the way of higher-layer technology of its own. We also think that’s true of Ciena, perhaps even more true. Ciena can’t be buying market share at this point, particularly when it’s a North American company itself and thus has an opportunity to make its own way in accounts where Nortel was strong.

In technology terms, Nortel has been the originating champion of PBT, but was unable to keep the momentum going on its own concept, even though carrier interest in the technology was the highest of any in the history of our operator surveys. We don’t think Ciena is going to be strong enough in a marketing and strategy sense to keep it going either, and thus this bid may well kill PBT.

Bidding for Nortel’s Ethernet assets highlights NSN’s needs

Yesterday was the final date for the submission of bids for Nortel’s metro Ethernet assets. Financial analysts are generally saying that the deal would be favorable for Ciena at its straw-man bid price, but of course the favorable outcome demands it getting the bid.

Nortel, whose latest quarter showed more bloodletting, is in the process of self-dismemberment down to a minimalist piece nobody can quite identify yet. NSN is also widely expected to bid for the unit to rekindle its chances in North America, where rival Ericsson’s win of the Nortel wireless unit has given it a leg up. The Ericsson CEO did a bit of crowing over its position in North America, in fact.

With Alcatel-Lucent winning many of the AT&T procurement zones and Ericsson strong in wireless, NSN needs to get effective in a hurry. We don’t think that the Nortel deal will do enough; NSN should look to broader M&A and strategy changes quickly.

NSN talks up open IPTV developer platform

NSN, following on a show theme that IPTV needs to be more developer-friendly, has been talking up its open platform at the telco TV show, and its efforts raise some interesting questions.

We agree that simple IPTV isn’t innovating fast enough to be viable. If you look at the cost of IPTV versus linear RF multi-channel distribution, the latter is a clear winner, so unless telcos considering IPTV have no cable competitors, they face a difficult problem of ROI and pricing.

There is also little question that traditional linear RF channelized TV in its digital form is becoming more interactive and thus eroding the differentiation that IPTV might claim. Developers could help the process along, but we think the real issue is whether an open developer process can be made to support a single vendor’s platform. Too general an approach to developers risks eroding NSN’s differentiation and that of its customers because developers could take their solutions elsewhere.

A stronger strategy would be to integrate developer support for IPTV with similar developer capability elsewhere in the service layer. NSN, at its recent Dallas analyst event, seemed reluctant to productize its broader service-layer middleware tools. We think NSN will have to in order to make its IPTV platform an effective solution to the real problem, which is operator agility in services overall and not just in IPTV.

Nortel’s Ethernet auction: What of the NSN speculation?

It’s almost time to play “Who’s Got the Nortel Ethernet” assets, with the auction coming in little more than a week. The big question is whether NSN, Cisco or another player might jump on Ciena’s stalking-horse opening bid.

Most financial industry speculation is aimed at NSN, whose numbers seemed to show more product sales erosion than others in the market. At NSN’s analyst event, there was a sense that professional services were the name of the game, though of course they could never sustain a business of that size. Furthermore, nobody knows how much of the professional services business NSN could get without a strong equipment base. In short, NSN needs to sell gear.

The Nortel stuff would bring them a much better North American presence, one of the problems NSN is contending with. It may collide with the Juniper/NSN joint venture, however, enough to reduce its overall value. We don’t think NSN could up the Ciena bid more than about $250 million without paying so much the Street would trash its stock. We also wonder whether more low-OSI-layer assets will really help.

Our feeling: leave Nortel alone.

Juniper/NSN joint venture and the LTE connection

Cries that Juniper must now match Cisco and Tellabs and buy a mobile-core player are ignoring a critical reality — and it’s not that Juniper’s new superchip can make its universal edge portfolio into an Enhanced Packet Core box (though it can).

The real issue with wireless, guys, is that you need a radio network. Through its close relationship with NSN (including metro, which after all is the “core” of Enhanced Packet Core, through its joint venture), Juniper has direct linkage with the radio network. NSN and Juniper actually make a pretty credible total mobile solution provider, stronger than either Tellabs or Cisco, providing that they can make the joint venture work effectively in that light.

NSN also adds professional services, which virtually all LTE deals are likely to mandate. All of this, to us, means that the real question is whether the Juniper/NSN joint venture will work effectively. While both companies blow kisses at the joint venture in their public comments, we’re still waiting to see substantive cooperation emerge.

NSN professional services a plus for carrier procurement zone strategy

The head of NSN’s North America operation said the company would be an LTE leader in North America, and said it rather emphatically, to be sure. The comments came at NSN’s analyst event this week, which was a parade of optimism on NSN’s prospects in the market, not only in North America but elsewhere.

NSN’s greatest strength is its professional services business, and second on the list comes its credibility with operators in multi-vendor integration. The company also has a strong service-layer story, though that story is built on tools used by its consulting and professional services staff to create one-off solutions for operators and not productized (at least for now).

The value of professionals services in the U.S. today is based on the procurement zone trend, already formally in place at AT&T, and in process (we’re told) at both Verizon and Qwest, and being considered even by Sprint. This program creates what’s effectively a mandatory systems integration position in each zone, which in turn means that those with strong capabilities in that area can expect to get a prime vendor position.

NSN’s 4G plans and strategic location for LTE center

NSN is opening a new LTE development center in Dallas, next door to the Nortel facilities, in effect, and thus able to draw on the labor pool from Nortel, much of which is willing to jump first and see how Ericsson might do second.

NSN had been an unsuccessful bidder for the Nortel wireless assets, but the move to set up its own development center might actually do the company more good by forcing it to devise a true LTE strategy of its own, integrated with its own assets and strategies.

Assimilating Nortel would not have been an easy task, in our view, and would have distracted management from the critical positioning exercises that are absolutely essential to getting a story ready for the fall planning cycle.

Ericsson’s Nortel wireless win linked to carrier buying trend

Ericsson came from behind to win the Nortel wireless auction, beating out both NSN (the original straw-man bidder) and a private equity bidder for the deal. There’s still a step of court and regulatory approval, but we’re not hearing issues in either of the two areas so far.

The Nortel deal gives Ericsson another North American asset after its win of a management contract for Sprint. It also means a major disappointment for NSN, which really needed to boost its own position in the U.S. in particular.

Obviously everybody knows at this point that wireless capex will beat wireline for the foreseeable future, but we also think that the move is linked to an overall change in provider procurement policies worldwide, a shift to a partnership with a few key vendors that control significant opportunity ecosystems.

Other deals like this are likely to emerge, inside and outside the wireless space, as vendors mass up and position for the fall cycle. We cover this shift in depth in the July issue of Netwatcher.

Network outsourcing trend grows from operations economics

Sprint is rumored to be looking at outsourcing its network management/operations to Ericsson, another data point in the growing number of management outsource deals. While there are certainly some potential savings involved in this sort of thing, we believe it’s actually pretty clear that savings per se are not the driver.

Sprint and other large operators are more than large enough to reach full operations economies of scale internally with the right tools and support. The problem is they don’t have that, and there’s no prospect of such tools arriving on the scene because of logjams in the standards processes. The outsourcing trend, in our view, is the result of long-standing operator angst about escalating operations costs and risk, and the lack of any systematic vendor support for new options to hold down costs.

By negotiating a deal with an outsourcer, operators can let the outsourcer do what’s needed, defying standards and other factors. In the long run, this may create an enormous advantage for vendors like Alcatel-Lucent, Ericsson, and NSN, which have large and successful outsourcing businesses. After all, while outsourcers don’t dictate network purchases, they are certainly in a position to influence them.

EU telcos weigh economics of network management outsourcing

The EU says telcos there are weathering the economic storm so far, better in fact than most industry sectors. This contrasts with other stories that telcos are outsourcing network management to reduce costs.

We think that the truth of the situation is closer to the EU version. We’ve found no indication in our surveys that telcos see network management outsourcing as a major path to cost reduction, and if one thinks about the issue, it is clear that unless the outsourcer has better economy of scale than a telco, it’s doubtful that such a move could be a win-win.

What we think is happening is that telcos are realigning their business models based on their current conception of monetization opportunities and risks. In some cases, this demands focus on new areas, and in others it suggests that there are activities better outsourced to professionals. We think some of the big players making deals with Alcatel-Lucent and NSN fit this model. There simply is not enough money on the table to make an outsource-for-cost-reduction decision prudent. For Tier 2/3 providers, however, labor availability issues may make an outsource decision mandatory.