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In the last two years, the worldwide communications industry has witnessed a phenomenal shift. It is more towards increasing area of operations, both geographically and technologically. The easiest route that companies are opting for is mergers and acquisitions. Not only does it help increase the company's turnover, it also helps in getting the required skill sets, which would otherwise take years to develop using its own R&D setup.

The process of acquisition started with the carriers and later activated mobile handset vendors. Presently, it is the carrier equipment vendors who are witnessing large acquisitions. Ericsson set the ball rolling with the acquisition of Marconi's telecom business on October 25, 2005. This followed Alcatel and Lucent entering into a definitive merger agreement on April 2, 2006, to create the first truly global communications solutions provider with broadest wireless, wireline and services portfolio in the industry. Later on June 19, 2006, Nokia and Siemens announced that they planned to merge the Network Business Group of Nokia and the carrier-related operations of Siemens into a new company called Nokia Siemens Network. This process is likely to continue in future as we expect some more mergers and acquisitions to happen. The anticipation is such that any new announcement leads to further speculation.

Why M&As?
In next five years, the communications infrastructure and services market is expected to touch ¤130 bn, and is expected to grow at healthy CAGR due to 3G, fixed mobile convergence, and next generation networks. Large scale deployment of 3G in India and China will also help boost the worldwide infrastructure market. All this is forcing vendors to align themselves to encash on future opportunities, both in terms of equipment as well as services since network transformation has just begun.       

With carriers being acquired, vendors always have the fear of losing the contracts, as one loss is worth several billion dollars. Apart from this, the companies are cut off from their clients for a period of 2-3 years as the contracts are now valid for that long. So, if the company loses one or more such contracts, it affects its topline. This fear of losing long- term contracts with large carriers is forcing companies to go in for either mergers or acquisitions. This helps them consolidate their operations and gear up for the future.        

Carriers are also opting for managed services and are focusing more on marketing of services. Service providers are also opting for complete packages for both wireless and wireline. So, in order to provide managed services, companies have to provide a complete set of solutions rather than partial solutions. Managed services also help carriers in terms of cost reduction in capex and opex but it puts a lot of pressure on vendors for developing solutions which can be leveraged later. And for all this, a strong partner is an absolute must, as it gives confidence to carriers that any future upgradation will be beneficial and will pay off in the long run.    

With networks becoming complex, vendors are planning to reduce their R&D budgets or planning to leverage through acquisitions or mergers. This is because future networks would be more complex and would require a lot of R&D expenditure. Mergers and acquisitions will help companies leverage each other's strengths and will help in moving with a complete portfolio both in the mobile as well as fixed services. Even convergence is increasing the R&D budget of vendors thereby affecting bottomlines. Apart from this, the companies have to launch their products in time so that they can have an edge over others, both in terms of breadth of products as well as depth in services.  

All this is leading to new business models that are still not tried and tested. And with large companies merging or acquiring, the vendors are reducing their risk and playing safe so that they can adapt to new conditions with the combined strength.

Mergers and Acquisitions

Nokia-Siemens Announcement June 19, 2006

Simon Beresford-Wylie CEO* Status: Merger Time: Expected to close before January 1, 2007 Headcount: Approx 60,000 Combined Revenues: ¤15.8 bn Market Capitalization: ¤20.4 bn Strategic fit for Nokia and Siemens: Will help in creating a global leader with strong positions in both fixed and mobile space. It will also help in developing cost saving products and services via its scale and global reach. The new entity is expected to have cost synergies of ¤1.5 bn annually by 2010, of which a substantial portion (approx 90%) will be realized in the first two years after closing of the deal.

Alcatel-Lucent Announcement April 2, 2006

Patricia F Russo CEO* Status: Merger/Acquisition Time: Expected to close within 6-12 months Headcount: Approx 23,490 Combined Revenues: ¤21 bn Market Capitalization: ¤30 bn Strategic fit for Alcatel and Lucent: The Alcatel-Lucent combine will be global in scale, have clear leadership in the areas that will define next-generation networks, boast one of the largest research and development capabilities focused on communications, and employ the largest and most experienced global services team in the industry. The new entity will offer integrated end to end solutions and plans to leverage on Bell Labs R&D portfolio for next generation networks The combined entity is a leader in wireline, number two in mobility and services.

Ericsson-Marconi Announcement October 25, 2005

Carl Henric Svanberg president and ceo Status: Acquisition Time: Completed in January, 2006 Headcount: 61,855 Acquisition cost: ¤1.76 bn Combined Revenues: ¤17.9 bn Strategic fit for Ericsson and Marconi: The latter has a strong position in optical networking and has a good track on innovation thereby adding strength to Ericsson's next generation network strategy. The acquisition will also be helpful in strengthening Ericsson's position in the transmission space. The combined customer base will have access to a more a comprehensive portfolio of solutions and will also benefit from an expanded R&D capability. The acquired businesses are generally well aligned with Ericsson's existing operations, making the integration relatively straightforward.