Nokia/Alcatel-Lucent combination to create 5G powerhouse, analysts say

Is Nokia Networks' (NYSE:NOK) $16.6 billion acquisition of Alcatel-Lucent (NYSE: ALU) all about becoming a 5G powerhouse? Some analysts believe that's the case.

The companies are eager to build scale in research and development before the rollout of 5G systems so they can avoid losing out to Asian rivals such as China's Huawei, reports LiveMint.com, citing sources close to the discussions.

Both Nokia and Alcatel-Lucent already have made strides in their 5G strategies, so it's not too much of a stretch to see that combining their R&D is going to make them a strong contender against Ericsson (NASDAQ: ERIC) and Huawei. Although the Chinese vendors are all but shut out of the U.S. infrastructure market due to national security concerns, both Huawei and ZTE are investing heavily in 5G. Huawei, in particular, has said it will demonstrate 5G in a trial during the FIFA World Cup in Russia in 2018, two years ahead of when commercial 5G systems are expected.

In the United States earlier this month, Nokia kicked off the Brooklyn 5G Summit with NYU Wireless by demonstrating the blazing-fast speeds of a 10 Gbps peak rate system over the air at 73 GHz. The demo was done with National Instruments (NI). Nokia has been a partner with NYU Wireless and earned a reputation for jump-starting industry interest in millimeter wave technology with a demo it conducted at last year's inaugural 5G summit.

Of course, Alcatel-Lucent brings to the table the research arm of Bell Labs. At Mobile World Congress 2015, Alcatel-Lucent showed off a number of items related to 5G, but it was careful not to call something 5G that doesn't exactly qualify as such. Last fall, Michael Peeters, CTO of the Alcatel-Lucent Wireless Division, warned that 5G should not become a technology dumping ground, as it appeared the industry was throwing everything but the kitchen sink behind the term.

More recently, he told FierceWirelessTech that "the marketing train has left the station," but that he would continue to try to be as realistic as possible as opposed to calling things 5G when they're already standardized or ongoing in Release 13. 

Combining each company's respective patents would put the combined entity into a stronger position. "Alcatel-Lucent is sitting on some important patents in the 5G space and Nokia is doubling down on those technologies. This is really about an IP grab and a way back to leap-[frog] the markets," Ray Wang, founder of Constellation Research, told TechCrunch.

In the press release announcing the deal, Nokia President and CEO  Rajeev Suri said that together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are. 

"Our innovation capability will be extraordinary, bringing together the R&D engine of Nokia with that of Alcatel-Lucent and its iconic Bell Labs," he said. "We will continue to combine this strength with the highly efficient, lean operations needed to compete on a global scale."

Indeed, the combined company will have a presence in France that includes a 5G/small cell R&D Center of Excellence; a cybersecurity lab similar to its existing facility in Berlin designed to support European collaboration; and a continued focus on Bell Labs and wireless R&D.

Engaging with and supporting projects and academic efforts that enhance the development of future technologies will remain an important priority, the companies say. Nokia also intends to establish a €100 million investment fund to invest in startups in France with a focus on the Internet of Things and the Industrial Internet.

A CCS Insight analysis notes the infrastructure market has undergone a decades-long era of consolidation as equipment suppliers look to build scale for increasing research and development investments and patent collections. "As each new generation of wireless technologies enters its gestation period, the number of infrastructure companies supporting the development of standards seems to shrink," CCS said  

Other analysts say it's more about scale. Huawei's lower cost to hire engineering talent in China is a big differentiator--larger than its ability to do cheap manufacturing, Current Analysis analyst Peter Jarich told IT World. The transaction is expected to close in the first half of 2016.

Either way, the combination will be a disruption, and competitors may take advantage of that as their service provider customers increasingly seek non-proprietary, open and software-driven solutions.

For more:
- see this Inside 5G article
- see this IT World article
- see this Digital Trends story

Related articles:
U.S. wireless carriers to face fewer vendor options as Nokia moves to buy Alcatel-Lucent
Nokia's $16.6B bid for Alcatel-Lucent puts company back into the wireline game
Nokia, Alcatel-Lucent confirm talks to create world's largest wireless network gear vendor

Read more on