Nokia, Siemens telecom deal shakes market

By SHIHOKO GOTO, UPI Senior Business Correspondent  |  June 19, 2006 at 2:02 PM
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WASHINGTON, June 19 (UPI) -- The global telecom industry is heating up further as Finnish mobile giant Nokia and Germany's electronics group Siemens announced over the weekend that they will merge their communications service business into one. While the move had been expected, some industry analysts are expecting similar deals between telecom giants to go forward sooner rather than later.

Specifically, Nokia will join its networks business group with the carrier-related operations of Siemens into a new company, Nokia Siemens Networks. Valued at around $31.6 billion, the 50-50 joint venture is expected not only to cut costs but also to improve the two companies' research-and-development abilities in the highly competitive sector as well as expand their respective global client base.

"We believe the partnership with Siemens is the most effective way to build the scale and broad product portfolio necessary to compete globally and create value for shareholders," Olli-Pekka Kallasvuo, chief executive of Nokia, said in a statement announcing the deal. "The communications industry is converging, and a strong and independent Nokia Siemens Networks will be ideally positioned to help customers lower costs and grow revenue while managing the challenges of converging technology." Kallasvuo will serve as chairman of Nokia Siemens Networks, which will be headquartered in Helsinki, while Nokia Executive Vice President of Networks Simon Beresford-Wylie will be its chief executive officer.

Meanwhile, Siemens Chief Executive Klaus Kleinfeld stated that "this joint venture is an important step to strengthen our position in the market sustainably and to enable us to offer the best state of the art converged technologies and services to our customers. This combination creates a leading industry player with immediate strength, excellent potential for growth and well-positioned to improve future profitability."

The two companies expect to save about $1.58 billion annually as a result of the deal, while Nokia said that it could slash up to 9,000 jobs over the next four years. Certainly, Nokia and Siemens' business plan is neither unexpected nor new. The two companies had been in discussion for at least the past three months, and some other big names in the telecommunications business, most notably France's Alcatel and Lucent Technologies, have already made similar deals. Meanwhile, some expect giants such as Ericsson of Sweden and Motorola to join the bandwagon and combine forces in an effort to remain globally competitive.

"The deal makes very good sense from Siemens' point of view," said Dan Bieler, an analyst at London-based research group Ovum, pointing out that the German group will combine its mobile and fixed network infrastructure with Nokia's network activities. In short, the deal allows Siemens to "pursue growth opportunities, especially in the core network area" both wireless and fixed, Bieler added.

Meanwhile, Nokia will be improving its presence in the Middle East and Africa as well as Eastern Europe, Latin America and parts of the Asia-Pacific region, which "will account for the majority of the next one to two billion subscribers as the mobile market grows. In these areas, prices need to be lower because disposable income is much lower than developed markets, so the greater scale of this venture is important," the Ovum analyst said.

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