By Simon Zekaria
LONDON--A marriage between Finland's Nokia Corp. and French
rival Alcatel-Lucent SA could create the world's largest
telecommunications-equipment giant, at least by revenue, and shrink
the number of suppliers to global telecoms providers.
Still, analysts said that despite a highly concentrated market
for telecom gear, suppliers haven't been able to flex pricing-power
muscle lately. And a combined Nokia and Alcatel could provide a
rival about the same size as industry leaders Ericsson and Huawei
Technologies Co., and actually pressure prices as all three compete
for each other's customers.
"It is an intensely competitive sector," said Rick Mattila, an
analyst at Mitsubishi UFJ Group. Huawei, a relative new comer, has
been pressuring prices in recent years. In addition to the
industry's "Big Four," a handful of relatively small Asian gear
makers also compete for customers.
On Tuesday, Nokia said it was in advanced talks to buy Alcatel
in a deal that, if it goes through, would create a European
equipment giant with a combined market value of $40 billion at
current prices. Combined revenue for the two companies in 2014 was
about $27 billion, edging out rivals Ericsson and Huawei in terms
of sales last year.
A ramped-up Nokia could compete head-on with Ericsson and Huawei
for carrier customers. All three build and sell infrastructure such
as cellphone masts, towers and relay stations at a time when
technological advances and consumer demand for more data on their
smartphones and other devices have triggered massive investment in
network infrastructure by carriers.
Consolidation could also cut costs out of research and
development, which may filter down to the price a merged company
could afford to offer.
"It could be a good thing" for carriers, said Sylvain Fabre, an
analyst at research firm Gartner.
Still, even before the talks were disclosed, carrier executives
have worried about having too few suppliers in the market. In the
wireless sector, for instance, Ericsson, Huawei and Nokia already
control 80% of the global market by revenue, according to Bernstein
Securities. Alcatel-Lucent holds another 10% share.
Big European telecom carriers weren't talking about the merger
talks early Tuesday. Representatives for Vodafone Group PLC, the
world's second largest carrier by subscribers behind China Telecom
Corp., declined to comment. U.K. fixed-line incumbent BT Group PLC,
which is looking to complete a deal for mobile operator EE, also
declined to comment.
A merger deal would be a way for Nokia to boost its share of the
competitive and profitable U.S. wireless market. Alcatel-Lucent has
roots there. The company was formed in 2006 with the merger of
Alcatel and Lucent Technologies, which AT&T Inc. spun off. It
maintains customer relationships with AT&T and Verizon
Communications Inc. Huawei continues to have challenges in the
U.S., where a 2012 congressional report recommended U.S. telecom
carriers to avoid using the Chinese company's networking gear due
to alleged national security risks. Huawei has denied the
allegations.
Ericsson declined to comment on its competitors' activities,
adding that it was focused on its own strategy. Orange also
declined to comment.
Deutsche Telekom, Telefónica, AT&T, Huawei and Verizon
weren't immediately available to comment Tuesday.
Write to Simon Zekaria at simon.zekaria@wsj.com
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