Nokia-Alcatel deal may force Ericsson to expand fixed line range

Wed Apr 15, 2015 2:35pm EDT
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STOCKHOLM, April 15 (Reuters) - Sweden's Ericsson , the world's biggest maker of mobile telecoms equipment, will probably have to expand its range of fixed line products to defend its turf following Nokia's purchase of Alcatel-Lucent.

As the Finnish and French firms combine, Ericsson will face a much stronger competitor with a broader product offering, bigger sales and R&D clout than itself. It may therefore respond by buying companies to bring in fixed line technologies.

"Global operators have all made the shift to converge fixed and mobile, and now equipment makers will have to follow suit," Alcatel-Lucent Chief Executive Michael Combes said on Wednesday, adding that he expected Ericsson to reexamine its product line to beef up its fixed broadband business.

Ericsson could aim to buy Ciena, with which it cooperates already, to boost its position in optical networking, or fellow U.S. group Juniper, to expand in Internet routing, Combes said.

Ericsson has made some inroads into fixed products before. One of its biggest acquisitions in the past decade was the 2005 deal to buy most of Marconi, including the firm's optical networking business, for around $2.1 billion.

It also entered into a partnership last year to sell Ciena's optical and Internet Protocol (IP) gear, but analysts said Nokia's purchase would force Ericsson to speed up its efforts as mobile and fixed communications increasingly converge.

Bernstein analysts said the deal would create a new top equipment seller but Ericsson could place itself ahead of Nokia and China's Huawei by buying the two U.S. firms.

"If Ericsson wanted to restore the old order and avoid being marginalised over a long period of time by two players with completely credible mobile capabilities and much stronger IP routing and optical ones, the natural route for Ericsson would be to acquire Juniper and Ciena," Bernstein said in a note.

Ericsson declined to comment on Wednesday but Chief Executive Hans Vestberg said at its shareholders' meeting on Tuesday that he didn't immediately see the deal as meaning his firm would have to change its strategy.   Continued...