Update: Nortel sheds UMTS access for $320m

Nortel has announced plans to shed its UMTS access business, claiming a lack of proper scale has hampered the unit's progress. Alcatel has signed on the dotted line with a Memorandum of Understanding to acquire the loss-making unit for $320m.

According to Alcatel, the acquisition will help it broaden its wireless broadband access portfolio and help it become a "strong number three" player in UMTS, one flavour of 3G, and HSxPA, the technologies collectively known as 3.5G, behind Ericsson and Nokia Siemens Networks.

Under the deal, Alcatel will snap up Nortel's UMTS radio access technology and product portfolio, associated patents and tangible assets as well as customer contracts. It will also pick up the majority of Nortel's customers and sell to one in four UMTS operators worldwide. Alcatel's previous UMTS customer base had been confined to US mobile operator Cingular.

Instead of concentrating on UMTS access, Canadian telecoms equipment-maker Nortel will focus its efforts on so-called 4G technologies, as well as IMS (internet multimedia subsystem) - a platform for various communications services embracing areas such as VoIP, mobility and convergence. Its CDMA and GSM units will not be affected.

Mike Zafirovski, Nortel president and CEO, said: "It was a tough decision but we believe it was the right decision… there are too many players in this business." Zafirovski added that the company will invest the proceeds from the sale in profitability and incremental investment in other areas.

Nortel says it will now be trying to "aggressively target" areas where it can succeed and sharpening its focus by ditching businesses that don't have the potential to generate sufficient cash. Nortel had less than 10 per cent market share of the UMTS market.

According to Julien Grivolas, analyst at research house Ovum, the move will be beneficial to Alcatel in North America and will strengthen its position in a competitive market.

He told silicon.com: "[Nortel] invested a lot of money in UMTS without a great deal of success. They had some good customers but they were having difficulties reaching scale. Putting the business together with Alcatel's will make it easier but it will still be a challenge."

The deal is expected to close in the last quarter of this year.

The sale of the Nortel unit follows a number of big moves in the telecoms infrastructure. Since late last year, Alcatel and Lucent have announced a merger, Ericsson snaffled the lion's share of Marconi and Nokia and Siemens created a joint networking venture.