Nokia Acquisition Talks With Alcatel-Lucent Could Be About 5G

Nokia confirmed today it was in talks to buy Alcatel-Lucent and the underlying reason just might be the latter’s 5G patent stash.

When I was at Mobile World Congress last month, there were several hot topics, but near the top of the list was 5G, that slippery notion of super fast mobile networks.

Looking For 5G

Nobody has actually built a 5G network yet, but there is a lot of speculation about what one could look like. In fact, FCC Chairman Tom Wheeler, speaking at a Mobile World Congress keynote Q&A, likened it to a Picasso painting where each person stands in front of it and sees something different. In other words, it’s a hard concept to nail down right now.

We do know this much. Whoever can solve 5G and begin launching networks, is going to have a huge market advantage. 5G has the potential to change the way we think of mobile computing and all that bandwidth could usher in use cases we haven’t even imagined yet.

While the most obvious reason for buying Alcatel-Lucent would be getting bigger, Ray Wang, founder and principal at Constellation Research believes it could be about Nokia gaining access to Alcatel-Lucent’s 5G patent stash.

“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,” he said.

Getting Bigger

But Jack Gold, principal at Jack Gold and Associates, a mobile consulting firm isn’t so so sure. He says the patents are certainly important, and that both companies likely hold some good ones, but he believes it’s all about scaling.

“I’d suggest that perhaps patents are part of the equation, but the bigger issue is bulking up to compete head on with Huawei and also Ericsson,” Gold wrote in an email.

Gold is right of course. It’s important to remember that Nokia shed its handset division, which it sold it to Microsoft last year. It’s a mobile networking company now, and it needs to compete with Ericsson and Huawei, who are both bigger How to gain some size quickly? Buy one of your competitors and suddenly you’re much bigger.

Benjamin Robbins, founder and CEO at mobile consulting firm Palador agrees with Gold. “I think it is a good potential move to rebuild itself on a larger scale — particularly the US — as long as it has well-laid plans for integration,” he said.

That’s always the tricky part. It’s one thing to combine companies, but it’s another to unite two cultures. On paper it certainly looks like a good idea and that explains why they are far enough along that Nokia is willing to admit it publicly, issuing this statement today:

“In relation to recent media speculation Nokia and Alcatel-Lucent confirm that they are in advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent. There can be no certainty at this stage that these discussions will result in any agreement or transaction,” Nokia’s public statement read.

It’s rare that a company actually admits it’s in talks, usually preferring to keep these things quiet, but it suggests that talks could be far enough along that it was worth it to Nokia to go public and quell the speculation.

Whatever the motivation, this deal looks like it could happen, but if the two companies can come to an agreement, it begs the question whether the EU or the French government would step in and try to put a stop to it. While a deal makes sense on a global-competitive level, it might not make sense to these entities on a regional one and it could result in less competition in the EU.

It should be interesting to watch how this plays out.