More mergers expected in mobile network business

Ericsson-Marconi, Alcatel-Lucent and Nokia Siemens account for 65% of mobile networks and related services worldwide. Competition is tough. Executive VP and CFO Karl-Henrik Sundström of Ericsson says that product development costs continue to rise, and predicts more telecom manufacturer mergers as a result. Ericsson aims to grow faster than the market. General Manager Ari Lehtoranta of Nokia Radio Networks also expects to see more mergers in the mobile network business, partly due to the triumph of the GSM technology.

The CDMA technology is on a downward spiral, with suppliers weakened, and companies are forced to make new moves. Key manufacturers need volumes due to high R&D costs. Besides, they need extensive product portfolios. And third, they must be able to service operator clients all over the world. Likewise, analysts expect to see new mergers in the mobile networks. Ari Lehtoranta of Nokia Radio Networks states that the fates of Motorola and Nortel are the most precarious. Analysts suggest these two will soon be suffocated by the big three, and hence, say, a merger by Huawei and Nortel is possible. In 2007, operators' network investments might increase to the record level of 2001, which was EUR 56bn worth of mobile network orders. Lehtoranta explains the boom by the fact that network and mobile phone prices have gone down, and operators have learned to work extremely cost efficiently.

Network investments are on the rise also because of evolving phone technology. Wireless networks are required to transfer massive files with ease. The service branch of the mobile network business is also growing fast, involving setup stage services and network maintenance. Leading analyst Mark Newman at the research company Informa Telecoms & Media calculates that mobile operators in emerging markets are more profitable than those in Europe or North America.

Emerging markets allow firms to expand their business substantially. A major obstacle for telecom manufacturers is the lack of electricity networks in some emerging market areas. Lehtoranta believes that the power consumption by base transceiver stations will fall, allowing them to be powered by lighter solar panel systems. He is doubtful about biofuel solutions developed by Nokia Siemens' competitors.