Nortel set to sell off GSM business

Nortel Networks is preparing to auction off its division that makes equipment for GSM (Global System for Mobile Communications) networks early next month, continuing the unloading of its businesses under bankruptcy reorganization.

The sale may not generate as much interest as the auction for Nortel's larger CDMA (Code-Division Multiple Access) division earlier this year.

On Nortel's 2008 financial results, a line for "GSM and UMTS solutions" showed revenue of about US$1.6 billion, compared with nearly $2.2 billion in CDMA revenue.

More importantly, Nortel sold off the UMTS (Universal Mobile Telecommunications System) portion of this business to Alcatel-Lucent on Dec. 31, 2006, eliminating a key upgrade path from its GSM offerings.

GSM is the most widely used 2G (second-generation) cellular system in the world, but many GSM operators have upgraded to 3G technologies such as UMTS and HSPA (High-Speed Packet Access) or are expected to. The division Nortel is putting on the block also includes GSM-R (GSM for Railways), a specialized version of GSM for railway operators' internal communications.

On Wednesday, Nortel filed a motion with the U.S. Bankruptcy Court for the District of Delaware to set up an open auction for the GSM business. It will file a similar motion with the Ontario Superior Court of Justice in Canada, where Nortel is based.

Bidders will have until Nov. 5 to submit offers, subject to any permitted delays, and the auction is scheduled for Nov. 9. Nortel said it has had initial discussions with potential buyers.

Equipment makers may hesitate to buy the GSM business because they won't get a corresponding set of UMTS products to offer their carrier customers a smooth upgrade path, said Yankee Group analyst Phil Marshall.

"The value to a traditional incumbent infrastructure player is somewhat limited," Marshall said. However, an up-and-coming network provider such as China's ZTE or Huawei Technologies might acquire the unit to gain the business of carriers currently using Nortel, he said.

GSM-R is a growing technology that is taking the place of proprietary radio systems, Marshall said. But because it is a low-volume niche technology, it might be hard to run that part of the business profitably without a good set of complementary high-volume products, he said.

In July, Ericsson won the auction for Nortel's CDMA business with a bid of $1.13 billion.

That acquisition is expected to expand Ericsson's presence in North America, which is Nortel's home base and the home of two of the largest CDMA operators, Verizon Wireless and Sprint Nextel.

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