Amid the frenzy over a flagging economy and road bumps to the next generation of technologies, Nokia Corp. won a series of third-generation infrastructure contracts that gives the handset vendor coveted status as a network provider.
The deals, including a $1.3 billion deal to supply network equipment for Orange, one of the world’s largest operators, propel Nokia to second place in winning 3G network contracts. L.M. Ericsson remains the worldwide leader in providing wireless infrastructure.
This agreement with Orange-which followed contracts with newcomer Hutchinson in the United Kingdom, Cable and Wireless Optus in Australia and Italy’s Wind-negated the caution that has pervaded the industry in the past quarter over the excess wash of vendor financing.
According to the Orange contracts, Nokia will supply advanced 3G networks for Orange’s U.K. operations, Orange’s French arm, Itineris, and MobilCom, a German operator 28-percent owned by Orange.
“Nokia is putting its money where its mouth is,” said Adam Guy, senior analyst for the Strategis Group. “It is demonstrating its confidence in 3G and the deal is a smart move by Nokia to jumpstart the work on the technology.”
Nokia is trying to lead the charge in getting over the pessimism about 3G, noting that the technology is about the future, Guy said.
Nokia was discriminating in its choice of partners, picking brand names like Orange, Guy observed. “It’s also becoming a two-way courtship, unlike the mistakes of Lucent (Technologies Inc.) and Cisco (Systems) with Winstar.”
The contracts call for Nokia to heavily finance the network buildouts, an increasingly common occurrence in the race to build 3G networks. However, investment firm UBS Warburg was not overly concerned about the venture financing, reiterating its buy rating on the Finnish company.
“We believe this is a major win for Nokia,” said UBS Warburg. It will contribute to five to 10 percent of Nokia’s estimated revenues in wireless infrastructure over the next three years.
UBS Warburg said Nokia vendor financing for recently announced deals amount to about $2.4 billion, representing 15 percent of book capital and an “immaterial portion of total market cap.”
Nokia raised most of the funds from a syndicate of banks including ABN Amro, J.P. Morgan and Merrill Lynch.
“This is a significant financing package, but it is in line with our prudent financing policy,” said Nokia’s Arja. Warburg also remarked that Nokia’s wins demonstrate Nortel Networks’ weakening position in Europe after its blockbuster deals with BT Cellnet and One 2 One in the United Kingdom, T-Mobile in Germany, and Airtel and Xfera in Spain.
Nokia will deliver solutions for mobile core and radio networks, supplying radio access networks for Orange UK and Itineris. In Germany, Nokia will provide the core network and turnkey implementation of the network, including professional services and operations support system.
“They are very satisfactory, very competitive commercial terms,” said John Allwood, Orange’s vice president, United Kingdom. “It means that if we can get it from the vendors, it leaves our lines of credit available elsewhere.”
Orange is under pressure to deliver to shareholders after pledging large amounts for UMTS licenses in Europe, including $6.4 billion for a 3G license in the United Kingdom.
Nokia said volume deliveries for commercial 3G mobile networks should begin in the second half of this year.
“With the combined strengths of Nokia’s delivery capability and technology innovation, we will be able to provide an unmatched, coherent, industry-leading 3G solution for Europe and the world,” said Ukko Lapppalainen, vice president, Nokia networks.
Alcatel Alsthom and Ericsson entered the fray with slices of contracts from the new enlarged Orange Group.
Alcatel’s contract with Orange, which is valued at $315 million, will allow it to deliver and install several thousand Evolium UMTS base stations and associated equipment over the next three years, including a UMTS core network system and deployment of a trial network.
Ericsson will jointly supply MobilCom with Nokia.
Nokia’s 3G agreement with Hutchinson in the United Kingdom, which is valued at $440 million to deliver radio access networks, will cover South and Northern Ireland, each covering 50 percent of the population.
Australia’s Cable and Wireless Optus Ltd. signed a $441 million third-generation deal, which will enable Nokia to supply its network infrastructure. Optus intends to deliver 3G services, which will include the introduction of WAP data services.
Nokia also signed a $450 million 3G contract with Italy’s Wind, the first Italian company to provide integrated fixed, mobile and Internet services for more than 9 million users.
The Finnish company expects to deploy the UMTS equipment immediately, Nokia said.
For all the good news, Nokia’s 3G dreams may be jeopardized by software glitches in its popular 2100, 5100 and 6100 phone models. The glitches impair its power to connect to the higher speeds that such carriers as Sprint PCS and Verizon Wireless need to differentiate their services.
Nokia said it considers this a minor problem and plans to work with operators to fix the back-end technology without embarking on a phone recall.
However, analysts think this will embarrass the handset manufacturer and said the company needs to come up with a solution to the software glitch before it gets out of hand.
