Ericsson to Acquire Nortel's CDMA, LTE Units

After Swedish wireless equipment maker Ericsson inked a deal to buy a majority of Nortel Networks' North American wireless business for $1.13 billion, the company outlined a plan that signals a move even further into the North American CDMA space.

 

According to incoming Chief Executive Officer and President Hans Vestberg (News - Alert), the acquisition would add 2,500 employees to the company. Of those 400 work on Long Term Evolution, or LTE.

 

The move signals Ericsson’s (News - Alert) plan to move further into the North American CDMA business market and is expected to help the outfit position itself better for future migration to LTE. In addition, the acquisition should provide Nortel's (News - Alert) customers with a strong supplier for the future.

 

“This deal, along with our recently announced Sprint (News - Alert) service agreement, truly positions Ericsson as a leading telecom supplier in North America," said Carl-Henric Svanberg, president and CEO of Ericsson, in a statement.

 

While the deal looks like a logical step for a company hoping to leverage the CDMA standard, the jury is still out on the future of the technology as many companies have moved away from selling telecom equipment to wireless carriers using CDMA.

 

The agreement includes CDMA contracts with North American operators such as Verizon, Sprint, U.S. Cellular, Bell Canada (News - Alert) and Leap, as well as its LTE assets, certain patents and patent licenses relating to CDMA and LTE, according to Ericsson.

 

Ericsson said Nortel's North American CDMA operations generated approximately $2 billion in 2008, with profitability from a range of products including a significant amount of services. In addition, says company executives, research and development costs are expected to be relatively low in CDMA compared with other technologies.

 

However, it is still up to regularity bodies to approve the deal.

 

Nortel filed for bankruptcy protection in January and had since been moving to restructure what had once been Canada’s top technology company.

 

Vestberg said he expects the purchase to be approved by bankruptcy courts in Canada and the United States, and receive the necessary regulatory approvals.

 

The transaction is subject to approval by both the United States and Canadian Bankruptcy Courts and the satisfaction of regulatory and other conditions.

 

At least one company, Canada-based Blackberry maker Research In Motion, is planning to challenge the sale to the Canadian government.

 

And there have already been calls by some lawmakers to stop the sale. According to a reporter in CBC News Canada, The government of Ontario wants the federal government to block the transfer of some of Nortel Network's advanced wireless communications technology to Ericsson.

 

During a call today with analysts, Vestberg said, “We feel confident that this will get through,” adding that he plans to sit down with Canadian regulators. In addition to getting support of the deal, he is hoping to work out possible government financing.