Nortel News: Wi-Max Fever, Telecom Supplier Issues, Nortel On the Rise

Wi-Max Fever

There’s an interesting - and somewhat breathless - story in a recent Globe & Mail article looking at the exciting future of Wi-Max, which “promises to do what the cellphone did for phone calls”.

While I love the concept of Wi-Max (high-speed wireless connectivity to compete against the cablecos and carriers), let’s just see how the technology can be leverage into a business. Look at how Sprint may be having second thoughts about spending $5-billion on a nation-wide network.

In Canada, Wi-Max may never get off the ground in a big way because the biggest provider, Inukshuk, is owned by Rogers and Bell, which both have high-speed franchises to protect.

Still, there’s plenty of optimism surrounding Wi-Max. Nortel (NT) has made it a strategic priority while Cisco (CSCO) made a big bet by acquiring equipment maker Navini Networks for US$330-million. Given Navini raised $50-milion of private equity five months ago, Cisco must have either made a sweet offer, or Navini wasn’t sure of its prospects as a small player amid fierce competition.

Update: The NYT’s DealBook reports that Navini raised about $200-million of private equity over six rounds. It makes you wonder what kind of return - if any - the company’s investors got, and whether Cisco did them a huge favor by buying Navini.

Telecom Supplier Issues

The Economist takes a look at the struggles of the major telecom suppliers, highlighted by Alcatel-Lucent (ALU), which is expected to post “ugly” quarterly results next week.

There’s nothing terribly new in the story but The Economist does a good job of highlighting the key issues facing players such as Alcatel-Lucent, Ericsson and Nortel.

1. The wireless market - at least in developed economies - has started to mature while investments in new technologies such as 4G and Wi-Max are still simmering as opposed to bubbling. Many telecom carriers are being pragmatic about network upgrades as well.
2. Chinese suppliers such as Huawei and ZTE are taking advantage of lower cost structures to win market share on the strength of lower prices.
3. Many telecom products are being commoditized - a trend that my friend and analyst, Lawrence Surtees, was talking about six years ago. Lawrence was clear that the days of expensive hardware sales were going to be replaced by less expensive software sales - and he’s proved to be right. The Economist contends one of the ways telecom suppliers can get out of this vicious cycle is offering services, including the operation of telecom networks for carriers.

Nortel On the Rise

Hey, what’s going on with Nortel shares? They’re up about $1.20 since last Thursday. Surely, it can’t be the announcement that Montreal-based cableco Videotron is using its using Nortel’s Communications Server 2000 to offer its customers a new soft phone service to do video calls and VoIP call routing functions.