Confusion over mmO2, Nortel contract for 3G network

U.K. mobile-phone operator mmO2 PLC said on Wednesday that it is still on track to roll out its 3G (third-generation) mobile networks by the middle of next year, but there is some confusion over its 3G network-vendor contract with Nortel Networks Corp. and whether it even has a current contract with Nortel.

"We are in talks with a number of vendors, including Nortel Networks, and are still planning a roll out of our 3G networks by midyear 2003. We will reach a final decision on which equipment vendors we will contract with later this year. But keep in mind that (the deployment) is also dependent on a number of factors, in particular the availability of dual-mode handsets in significant numbers," said mmO2 spokesman Simon Gordon.

The news that mmO2 is still considering its options on the construction of its 3G networks has come as something of a surprise to Ontario-based Nortel. "We have a contract with mmO2, signed on the 29th of September 2000 and we continue to work with them on the development of their 3G/UMTS (Universal Mobile Telecommunications System) network," said Nortel spokesman Will Cairns.

In May 2000, Nortel announced that it had secured a five-year contract with BT Cellnet Ltd. as principal supplier of BT Cellnet's nationwide 3G/UMTS network. Nortel valued the deal at US$780 million, Cairns said. BT Cellnet, a subsidiary of mmO2, was then the wireless division of British Telecommunications PLC (BT).

According to both companies at the time, Nortel was to provide an end-to-end mobile infrastructure and network, including a unified packet IP (Internet Protocol) network, applications and services management, turnkey network implementation services, and a "3G wireless Internet services center and development team."

Last November, BT spun off its renamed wireless division mmO2 as a separate, publicly traded company. The new company's assets -- which are scheduled to be rebranded as O2 by the end of the second quarter -- include BT Cellnet in the U.K., VIAG Interkom AG in Germany, Telfort Holding NV in the Netherlands, Esat Digifone Ltd. in Ireland and Manx Telecom Ltd. in the Isle of Man.

Though he declined to be drawn on any details of the contract, mmO2's Gordon did point out that the announcement in May 2000 indicated that the agreement with Nortel was "subject to final contract."

"Due to reasons of confidentiality, I can't outline the exact nature of our agreements but I can say that mmO2 is now in discussions with a number of network-equipment vendors, including Nortel, though we're not ruling anyone in or out," Gordon said.

But Nortel's Cairns was also firm in his position. "I'm not going to comment on what Simon Gordon said, I'll just reiterate that Nortel does have a contract with mmO2 and we continue to work with them on the development of their 3G networks," Cairns said.

MmO2 said it has not finalized its plans on its 3G networks, but it has completed some initial work such as the limited launch last December of its first 3G services in the Isle of Man, through its wholly owned subsidiary Manx Telecom.

MmO2 built the Isle of Man 3G network in partnership with NEC Corp. and the German electronics and engineering giant Siemens AG, but said at the time that it had yet to decide if the company would continue the partnerships as it expanded the 3G network. The launch of the Isle of Man network was delayed by seven months, due in part to a bug in the integrated software in the NEC handsets, mmO2 said in December.

MmO2 has contracts with a number of vendors through its different subsidiaries in Germany, the Netherlands, Ireland and the U.K. and the company may be trying to rein in those various contracts, said Paolo Pescatore, a senior wireless mobile communication analyst at IDC. "Having not read the contract, I can only guess that the company is trying to cut down on its capital expenditure by narrowing down to one European contract, rather than sell individual contracts to individual vendors for individual subsidiaries," he said.

Pescatore said it is his understanding that mmO2 already has contracts with Nortel, Cisco Systems Inc. and Siemens for building various parts of its 3G network, and speculated that mmO2 may be looking to formalize a contract for 3G components and middleware as opposed to the infrastructure of the network itself.

"There is certainly going to be an issue later on for mmO2 and for its users if the company isn't already constructing the network. But that surprises me, because they should be in a position to be constructing the network in all the various countries it covers. I would also be surprised, whatever is happening, if mmO2 didn't go with or remain with Nortel, just because of its position in the market," Pescatore said.

Pescatore agreed with mmO2's Simon that having enough dual-mode handsets on the market will be a key component to the rollout of 3G networks. However, he also pointed out that, as with the rollout of its Isle of Man 3G network, mmO2 has in the past blamed delays in 3G on problems with handsets.