Nortel Sheds UMTS Pounds

Nortel today said it has agreed to sell its UMTS access
business to Alcatel for $320 million, the latest step in the networking
giant’s plan to shed businesses it doesn’t expect will lead the market.

Short for Universal Mobile Telecommunications System, UMTS
is a 3G mobile technology that pipes voice, data, audio
and video to wireless devices through fixed, wireless and satellite systems.

The sale includes Nortel’s UMTS access product portfolio, consisting of the
Radio Network Controller and Node B products and OAM solutions, services and
assets, said Nortel President and CEO Mike Zafirovski on a conference call.

The CEO said that, although the decision was tough, it was the right one
because Nortel’s UMTS access business was less than 10 percent of revenues
and was operating at a loss.

“Our UMTS access business lacks the scale and momentum needed to become
profitable,” Zafirovski said. “There are too many players in this area …
our business is simply not strong enough to justify continued development.”

Nortel said the majority of Nortel’s UMTS access business workers will
transfer to Alcatel, with the companies targeting the fourth quarter of 2006
as a closing period.

Zafirovski said Nortel will work closely with Alcatel to ensure the
transition is seamless.

He also stressed that Nortel will continue to develop and support solutions
for the evolution of GSM access and core, GSM-R, GPRS
and EDGE technologies, as well as CDMA
access and core, and UMTS core.

Shedding UMTS will give Nortel cash that will contribute to overall
profitability, as well as enable it to make incremental investments in
next-generation mobile technology, enterprise transformation and services
and applications.

Specifically, the Toronto-based company has an eye toward future 4G rollouts,
with video and other types of multimedia systems expected to play a large part in
the next wave of mobility.

Today’s moves comes months after Nortel unveiled a three-pronged plan
earlier this year to improve fiscal performance: increase investment in key
areas, partner in others and divest where there is no path for it to corral
a 20 percent market share, which is where the UMTS sell-off fits in.

Nortel sold its
Blade Network Technologies business to Garnett & Helfrich Capital.

“Our ability to execute has been excellent in some places, but overall,
average to below average,” Zafirovski said in
a meeting with media at the CTIA show in April.

“We’re too complex to operate as a company. We tried to be too many things
to too many people. As a result, we’re not as strong as we’d like to be in a
number of areas.”

As for Alcatel, the French company already boasted a strong UMTS access
portfolio and market share, thanks to in-house development. The company is
also purchasing
rival Lucent to boost UMTS gear.

Today’s deal will further fortify rival Alcatel in
the well-established market for 3G technology, even as networking vendors are
preparing for more advanced 4G rollouts, including VoIP , IP
Multimedia Subsystems and WiMAX.