MSI Motorola Solutions Inc

Nokia Siemens Networks (NSN), a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI), recently suffered a massive blow. On July 29, the upcoming wholesale 4G LTE (Long Term Evolution) wireless network operator LightSquared announced that it has decided to outsource a majority of its network to Sprint Nextel Corp. (S) instead of Nokia Siemens Networks, declared earlier.

The deal between NSN and LightSquared was first announced in July 20, 2010. The 8-year agreement valued at more than $7 billion was considered the biggest ever wireless network infrastructure contract throughout the world. NSN was initially chosen by LightSquared to install radio access network (RAN), core network equipment, and several associated services. NSN had given the task to install and maintain a new U.S. 4G LTE mobile broadband network with around 40,000 base stations that will extend to 92% of the U.S. population by 2015.

Recently, LightSquared entered into a new 11-year agreement with Sprint Nextel for a total consideration of $13.5 billion ($9 billion in cash and $4.5 billion in credit) to deploy and operate a nationwide LTE network. Sprint Nextel has been given the task to deploy the most important RAN for LightSquared wholesale network. For this, Sprint Nextel has already chosen three vendors, namely, LM Ericsson (ERIC), Alcatel-Lucent (ALU), and Samsung Electronics Co. Ltd.

As a result, NSN will be left with just a truncated deal with LightSquared to install core network, which includes evolved packet core, packet transport, and some service provider information technology deals. Although the size of this reduced deal is not confirmed, several analysts have predicted that this will be just a fraction of the original agreement.  

After acquiring the wireless network infrastructure assets of Motorola Solutions Inc. (MSI) in April 2011, NSN was desperately looking for a foothold in the lucrative North American markets, which is its weakest spot. However, the company faced two major blows within the next 4 months. In addition to the LightSquared setback, if the proposed merger of AT&T (T) and T-Mobile USA get regulatory approval, NSN may lose its largest customer in North America, T-Mobile USA.

The acquisition of T-Mobile by AT&T may eliminate NSN as a vendor for the merged entities. LM Ericsson and Alcatel-Lucent are the two established vendors of AT&T. We believe AT&T may find it quite hard to eliminate Ericsson or Alcatel-Lucent and may dump Nokia Siemens Networks to generate cost synergies.    

Last month, NSN abandoned its equity disinvestment plan at least for the time being. For the last 12 months, NSN was looking for a third party investor in order to inject funds, thereby reducing the stake of both Nokia and Siemens. Two major U.S. private equity groups, Kohlberg Kravis Roberts and TPG, have backed out from their bidding for a significant stake in NSN. The departure of these two private equity groups primarily resulted from the disagreement between the firms and NSN over price and controlling stake in the venture.

 
ALCATEL ADS (ALU): Free Stock Analysis Report
 
ERICSSON LM ADR (ERIC): Free Stock Analysis Report
 
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
 
NOKIA CP-ADR A (NOK): Free Stock Analysis Report
 
SPRINT NEXTEL (S): Free Stock Analysis Report
 
SIEMENS AG-ADR (SI): Free Stock Analysis Report
 
AT&T INC (T): Free Stock Analysis Report
 
Zacks Investment Research