4 Min Read
BARCELONA (Reuters) - Nokia-Siemens Networks is mounting an expansion drive in North America where the world's third-largest telecom equipment maker believes a spate of deal-making among mobile carriers will play out in its favor.
Chief Executive Rajeev Suri said deals by Japan's Softbank to buy 70 percent of Sprint Nextel Corp for $20 billion, and Deutsche Telekom's purchase of MetroPCS was an opportunity for NSN to grab new U.S. business.
"It's a long game. We have gotten from number 5 to number 3 in past few years, and now we will go target number 2," Suri said in an interview at Mobile World Congress.
NSN may soon see its ownership change because a 6-year old shareholder pact between partners Nokia and Siemens expires on April 1.
The German group is eager to exit but Nokia's priority is its handset business so it is unlikely to buy out Siemens.
Suri said it was not likely that Siemens and Nokia would reach a decision on the shareholder pact at its expiry date, but said the issue had no impact on the business.
"You have to ask them what they want to do," he said.
Nokia and Siemens declined to comment.
The company is much healthier than it was a year ago after a restructuring which included a cull of staff from 75,000 to 58,000 and sale of non-core assets. Operating and gross margins rose last year, and NSN actually contributed to co-parent Nokia's cash flow instead of being a drain.
In the U.S. market, Suri said Softbank's arrival could work to NSN's advantage because NSN could capitalize on its strong supplier relationship with Softbank in Japan to win more contracts at Sprint and Clearwire, which Sprint is in the process of buying.
When operators merge, they often rationalize their network gear suppliers so as to cut costs, putting contracts in play.
At T-Mobile, NSN and Ericsson are the primary suppliers of mobile gear, while at MetroPCS it's Ericsson and Samsung.
"I think they will consolidate suppliers," said Suri, opening up an opportunity for NSN to displace Samsung.
The group's renewed vigor in the United States - sales in North America rose 20 percent last year to 1.294 billion euros - could increase pressure on loss-making Alcatel-Lucent, the second-biggest network gear supplier in the U.S. market after Ericsson.
Suri is confident that NSN can cope with the fierce competition and stagnant spending by global telecom operators.
"I still believe the global market only has room for three long-term profitable companies that can thrive over the next few years," he said.
Few dispute that Ericsson and China's Huawei will be the top two, with NSN and Alcatel-Lucent vying for the third spot.
Suri said there might not be enough M&A to reduce the number of players and that some might just limp along not making money but still staying in the business.
"The strong are getting stronger and the weak are getting weaker," he said.
"Just look at LTE (4G) contracts being awarded in India, Russia, Japan, and elsewhere: the same players win."
Market research Dell'Oro said Ericsson earned $761.30 million in LTE radio access revenue in the fourth quarter, while NSN got $451.40 million. Huawei's share stood at $428.80 million, Alcatel-Lucent's $295.90 million, and Samsung's $132.10 million.
Additional reporting by Arno Scheutze, Jens Hack, Ritsuko Ando. Editing by Jane Merriman