Nokia could soon find itself in the middle of a 5G power struggle
The flailing telecommunications provider is reportedly exploring its options.
For sale: Midtier telecommunications company, lightly used.
Nokia, which these days primarily sells networking equipment, is mulling its options "ranging from potential asset sales to mergers," Bloomberg reported. Nokia's 4G and 5G networking technologies could be a boon to others looking to capitalize on the fact that many countries are reevaluating their relationship with Huawei. The U.S. has outright banned the government buying equipment from the Chinese tech giant, and networks in several European countries are waiting to see how the market for 5G hardware shakes out before choosing to work with the company.
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There are many companies that could capitalize on Nokia's shortcomings — it's been struggling for profits and cut its outlook for 5G sales in 2020 amid growing competition — but who would be best suited?
Attorney General William Barr recently suggested that the U.S. should consider taking a stake in Nokia or Ericsson in a bid to keep Huawei out of U.S. infrastructure and to revitalize the country's telecom hardware industry. Earlier this month, experts told Protocol that U.S. government investment was out of the question. White House economic adviser Larry Kudlow, who has been heading up the U.S. effort to develop Huawei alternatives, seems to agree. That probably doesn't change just because Nokia suddenly finds itself available.
"The first obvious choices would be their competitors, which would be Ericsson or Samsung," Anshel Sag, a telecoms analyst at Moor Insights & Strategy, told Protocol. Unlike Nokia, Ericsson has reported banner 5G sales, lifting its guidance for the year on the back of strong demand in 2019.
Samsung has also been trumpeting its own successes in the network market, stating that its radios had been selected for Verizon and AT&T's 5G networks in the U.S. It's also working with many of the major players on its home turf, including SK Telecom and KT. (Networking remains a very small fraction of its revenue, however.)
Of American companies, Ciena is one of the few U.S. companies that has a growing market share in telecom equipment and might see an opportunity. Sag suggested American firms like Dell or Hewlett Packard Enterprise might be interested. Dell is said to be part of Kudlow's plan for American 5G.
Networking giant Cisco could be an option, given that it already develops switches telecommunications networks rely on, but that seems less likely since Cisco's CEO Chuck Robbins ruled out a move to acquire any European networking companies earlier this month. "It would be a significant increase in their commitments and be considered a big shift in their strategy," Sag said.
Then there's the elephant in the room. Huawei leads the networking industry, with one report suggesting it has around 30% market share. But it wouldn't necessarily be interested in ingesting Nokia. "They're already the market share leader," Sag said. "Their market power is already so high that any acquisitions of competitors would be seen as monopolistic."
Politics aside, it's likely that regulatory bodies might want to block the market leader from getting any more power, especially if it takes a European competitor out of the running. The European Commission declined to comment on whether it would block a potential takeover bid.
That said, the European Commission did release a "toolbox" for dealing with riskier 5G vendors back in January, not naming Chinese companies like Huawei or ZTE, but not outright banning them, either.
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"Europe has everything it takes to lead the technology race," EC Commissioner Thierry Breton said at the time. "Be it developing or deploying 5G technology — our industry is already well off the starting blocks."
Nokia declined to comment on reports of its sale, as did Ciena, Ericsson, HPE and Samsung on a potential acquisition. Cisco, Dell and Huawei weren't immediately available to comment.