Nokia and Alcatel-Lucent's marriage has transformed them from a two-horse race to a three-horse race

Yesterday was a good day for "marriage". In the morning, it was reported that Ganji.com and 58.com had joined hands, and in the afternoon, Nokia agreed to acquire Alcatel- Lucent for US$16.6 billion .

This is a new change, and it also indicates that the telecommunications equipment market will move from a two-way competition to a three-way competition.

From two powers to three powers

The major changes in global telecom equipment manufacturers also occurred in the last round when Nortel left and Motorola gave up. After 2011, the rankings of the five major equipment manufacturers, Ericsson, Huawei, Alcatel-Lucent, Nokia Siemens Networks, and ZTE, have been fine-tuned, with one going up and the other going down. However, as the global telecom market entered a period of slow growth, some disadvantaged equipment manufacturers began to change their minds. Alcatel-Lucent determined its transformation strategy in 2013: focusing on IP, cloud and ultra-broadband access. Nokia sold its mobile phone business to repay debts and focus on the three major sectors of network, HERE map and technology.

It is understood that Nokia and Alcatel-Lucent have been in constant negotiation for the past five years. Sources revealed that Nokia had discussed whether to acquire Alcatel-Lucent's wireless business at the end of 2012. After five years of "on and off", Nokia agreed to acquire Alcatel-Lucent for US$16.6 billion on April 15, 2015, and the transaction is expected to be completed in the first half of 2016. The new company will use the Nokia brand, but will retain Alcatel-Lucent's Bell Labs for its R&D activities. While the negotiations were ongoing, Alcatel's stock price rose sharply.

Huawei responded to the news by saying it was not convenient to comment. Ericsson also said it would not comment because it involved competitors. However, Ericsson said it would evaluate the impact of the incident and would focus more on its own strategy and work, and continue to provide the most advanced solutions and services to leading operators around the world.

According to the revenue ranking of the top five equipment manufacturers in 2014: Huawei, Ericsson, Alcatel-Lucent, Nokia, and ZTE. Nokia's acquisition of Alcatel-Lucent has achieved a "weak-weak alliance" to resist the pressure from Huawei and Ericsson. So can the combination of the two achieve the effect of 1+1>2?

1) Enhance competitiveness in the global market, especially in the US. Some analysts said that Nokia acquired Alcatel-Lucent because of its wireless business assets. For Nokia, the acquisition of Alcatel-Lucent's wireless assets will enhance the company's position in the global market, especially in the US.

In the US market, Nokia has cooperation with T-Mobile, but T-Mobile is a relatively small operator in the US. Alcatel-Lucent has a very strong interdependence with US operators and has signed many large contracts with Verizon Wireless, the largest operator in the US, and AT&T, the second largest mobile operator. This transaction will enable Nokia to win some contracts from the two major US operators, Verizon Communications and AT&T.

2) Enhance wireless business and become a complete network solution provider. As mentioned above, Alcatel-Lucent has achieved effective results through transformation and focus on IP, cloud network and ultra-broadband access, improving the profit margin and cash flow of business operations. The financial report shows that Alcatel-Lucent's revenue for the whole year of 2014 was 13.178 billion euros, compared with 13.813 billion euros in 2013; the net loss narrowed from 1.3 billion euros in 2013 to 83 million euros.

"Nokia's acquisition of Alcatel-Lucent will enhance its capabilities in the three major areas of IP, cloud and optical networks, thus becoming a full network solutions provider," analysts said.

The merger of Nokia and Alcatel-Lucent will break the existing pattern of Huawei and Ericsson competing for supremacy and realize a three-way competition. "The old empires huddled together to form a three-way competition of Ericsson, Nokia and Huawei," Tao Xujun, deputy general manager of the communications strategy department of Nomura Research Institute, told reporters. "But Huawei's offensive is very fierce, and the new Nokia is having a hard time."

Comparison of revenues of the top five equipment manufacturers in 2013 and 2014 (from the Internet)

Huawei's total revenue in 2014 was 288.2 billion yuan, a year-on-year increase of 20.6%; its net profit was 27.9 billion yuan, a year-on-year increase of 32.7%, making it the fastest growing company.

As can be seen from the table above, ZTE also has a large growth. "The new Nokia has to bear the pain of merging for two years and give up some market share in order to achieve more important cost savings and gross profit increase. This is painful but necessary. ZTE and Huawei have a two-year window to grab a little more market share without price wars," said analysts.

How does Shanghai Bell feel?

It is revealed that after the transaction between Nokia and Alcatel-Lucent is completed, Nokia will own 50%+1 of Alcatel-Lucent Shanghai Bell Labs, but the ownership of Shanghai Bell has not been mentioned. As Alcatel-Lucent's flagship company in China, how will Shanghai Bell develop?

Before the joint venture with Alcatel-Lucent, Shanghai Bell was a large state-owned enterprise directly under the Central Working Committee. After the joint venture, the Chinese side and Alcatel-Lucent held 50% and 50% of the shares respectively. "Shanghai Bell has always been in an awkward position. Bell, with equal shares, is both a foreign company and a central enterprise," said independent analyst Fu Liang.

When NetEase Technology asked about the ownership of Shanghai Bell, Shanghai Bell said that there was no confirmed news yet and referred to the press releases of Nokia and Alcatel-Lucent.

However, according to Reuters, Singapore's Flextronics International Ltd is in talks with Alcatel-Lucent, which is about to be acquired by Nokia, to acquire the manufacturing department of Alcatel-Lucent's joint venture in China, Shanghai Bell Co., Ltd.

No one knows what the future of Shanghai Bell will be.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.