The possible acquisition of Alcatel-Lucent of France by Finland-based Nokia would bring together complementary patent portfolios and increase their scale against larger global competitors, analysts said Tuesday.
Nokia's patents primarily cover technology used for communications between smartphones and cell towers equipped with base stations that are provisioned with routers and other gear. Meanwhile, Alcatel-Lucent's patents are more concentrated on communications beyond the base stations to the backhaul, which is often over fiber optic cable.
"While the two companies have adjacent technologies, there is limited overlap in them, so this results in a good combined portfolio with the whole of the telecom technology stack," said Aditya Awasthi, director of client services at Lexinnova, a patent analytics company based in Houston.
Lexinnova analyzed hundreds of patents held by the two companies to reach its general conclusion about the possible deal's impact on their combined patents. News of a potential deal was disclosed by the two companies early Tuesday. The companies said in a brief statement that they are in "advanced discussions" about a stock offer by Nokia for Alcatel-Lucent, but warned there is "no certainty at this stage that these discussions will result in any agreement or transaction."
Patent prowess could play an important role in the ability of a combined company to compete against larger rivals Ericsson of Sweden and Huawei of China , at least globally, if not in the U.S. Having a larger patent portfolio will be more important as wired and wireless networks converge to handle video and other rich content, especially with the advent of faster 5G wireless technologies in coming years.
Huawei networking gear isn't widely used in the U.S., largely because a congressional report in 2012 raised concerns about the national security risks behind use of networking equipment from a China-based company. Huawei has denied any risks exist.
If Nokia acquires Alcatel-Lucent, carriers in the U.S. would face having just three major core network gear options: Nokia, Ericsson and Samsung, said Gartner analyst Bill Menezes. "A question this raises is whether U.S. regulators would take another look at allowing a big global vendor such as Huawei to provide core infrastructure to U.S. wireless operators, for the sake of competition," he said. Other analysts also included Cisco in that group.
U.S. carriers AT&T, Verizon and Sprint declined to comment on the possible deal. Still, there's little question that the carriers will watch carefully as events unfold, especially since Alcatel-Lucent has already struck equipment deals with both AT&T and Verizon. The pricing of major carrier equipment from the likes of Nokia and Alcatel-Lucent is critically important to how carriers meet their bottom lines.
Jack Gold, an analyst at J. Gold Associates, said both companies may see the need to combine to "keep the competitors at bay…. Neither Nokia nor Alcatel-Lucent is really big enough to compete with Huawei in particular on a worldwide basis." He said Huawei has been stymied in the U.S. due to the fears of Chinese spying potential, "but in the rest of the world they have been quite aggressive and have had some big wins."
Combined revenues for Nokia and Alcatel-Lucent companies were $27 billion in 2014, which was slightly larger than either Ericsson or Huawei.