Daily Archives: July 27, 2009

Picking the Bones of the Nortel Wireless Auction

Now that Nortel has auctioned off its wireless business unit, comprising CDMA and LTE network infrastructure and related assets, we should consult our programs to determine how successful each major player was at getting what it wanted from the process.

Let’s start with Nortel, since the insolvent company — once a major purveyor of telecommunications equipment worldwide, but now a rapidly unwinding ball of products, technologies, and patents — is positioned in the center of the three-ring circus.

What did Nortel want and get from this auction of its wireless business unit? Well, it got significant compensation from which to pay its creditors. Although the stalking-horse bid from Nokia Siemens Networks was set at $650 million, the winning bid from L.M. Ericsson Telephone Co. (Ericsson) came in at $1.13 billion in cash, after countless hours and a series of tit-for-tat offers.

That’s a good haul, and most creditors will be pleased with the result.

Ericsson, of course, got Nortel’s Code Division Multiple Access (CDMA) and Long Term Evolution (LTE) wireless networking business. As a result of the deal, Ericsson bolsters its CDMA account presence throughout North America — strengthening its grip on the continent’s largest CDMA wireless operators — and puts itself in the favorite’s role to lead those carriers’ network-technology transitions to LTE infrastructure. What’s more — and not an immaterial concern — it locks out Nokia Siemens Networks, which had designs on climbing back into the CDMA ring in North America.

Not as flush with cash as its Swedish rival, Nokia Siemens Networks, though genuinely interested in coming away with Nortel’s wireless assets, ultimately couldn’t match bids with Ericsson. In the end, it folded its cards after looking across the table at a rival that was resolutely determined to emerge the winner. Nokia Siemens will go back to the drawing board now, forced to devise displacement strategies if it intends to capture major CDMA-to-LTE carrier accounts in North America.

MatlinPatterson Global Advisers LLC, a prominent Nortel bondholder and a private-equity firm that specializes in distressed assets, also was at the table bidding for Nortel’s networking assets.

Ostensibly, MatlinPatterson talked a big game about running the Nortel business unit as standalone operation. In reality, however, MatlinPatterson’s offer of cash and debt, easily overtaken by the competing all-cash bids of the real networking companies, was designed to stoke the auction fires. MatlinPatterson reminded me of those characters in countless situational comedies, cheekily bidding on their own antiques at stately auctions to coax others to bid even higher.

But I must give credit where it is due. MatlinPatterson came to the table as a Nortel debtor looking to squeeze full value from a prized Nortel asset. It largely met its objective.

A company not at the table, but hovering over proceedings like a vengeful spirit, was Research In Motion, Canada’s successor to Nortel as the country’s leading technology standard bearer.

RIM and Nortel have traded unsavory accusations, with the former accusing the latter of shutting it out of the auction process by precluding RIM from bidding on additional Nortel assets for at least one year. For its part, Nortel accused RIM of refusing to sign a standard non-disclosure agreement, thereby apparently disqualifying itself from participating in the auction.

RIM now is asking the Canadian federal government to intervene, arguing in a statement Sunday that “the government has the authority and responsibility to get involved to protect vital Canadian interests.”

Canada’s Industry Minister Tony Clement is sitting on the fence. He says he hasn’t decided whether to intercede on RIM’s behalf. Still, it’s apparent the government doesn’t enjoy being in this position, and it’s looking for a way out that will mollify RIM, will allow Nortel and its creditors to move on with their lives, and will it to avoid having to block and attempt to reverse a high-profile technology acquisition by a foreign company.

So, what to do? That’s where we come to what RIM wants.

RIM never wanted Nortel’s CDMA and LTE network-equipment assets. That’s not RIM’s business, and it doesn’t have a belated interest in getting into that game.

What RIM does want — and what it alluded to in those cryptic references to “other Nortel assets” on which it wished to bid — is Nortel’s treasure trove of LTE patents. As a Wall Street Journal blog post explained, Ericsson’s successful bid for Nortel’s network assets wins it a business unit comprising CDMA and LTE products and technologies as well as licenses to LTE patents — but it does not include the patents themselves.

RIM likes patents, especially those covering an important emerging wireless technology such as LTE, which will enable all sorts of new high-bandwidth mobile applications involving video communication. Access to and ownership of such patents would give RIM a revenue stream and a competitive margin advantage over its smartphone rivals.

Of course, Nortel had designs on keeping those LTE patents. That might be difficult now, with RIM playing the aggrieved party, waving the Canadian flag, and pushing the federal government into entering the fray on its behalf.

I’d say RIM has a good chance at acquiring some patents, which is what it wanted all along.