The auction outcome is the second bold North American move for the Swedish telecommunications giant, which has historically struggled in North America. Those days may be over. In the largest deal of its kind in the United States, Ericsson was earlier this month chosen to run Sprint's day-to-day network operations, a deal worth $5 billion over seven years.
With Nortel's LTE technology and expertise at the ready, Ericsson is poised to capture a good deal of Verizon's business as it races to build out its 4G network faster.
Early LTE successes could then pave the way to easier global wins in the longer term, but first Ericsson will have to keep the momentum rolling by integrating Nortel's assets and people and performing what could prove to be tricky legal maneuvering around opponents of the deal -- Research In Motion (RIM), for instance, and the Nortel Retirees Protection Committee.
"What Ericsson has done, with no disparagement to them, [is bring] themselves onto the launchpad, but they still have to get up into space," said Tom Nolle, president of CIMI Corp. "There are still a million ways for them to screw this up."
Ericsson's numerous Nortel challenges
The first challenge will be making sure the deal actually goes through in the first place.
Even before it was publicly known that Ericsson would be bidding for, let alone winning, Nortel's CDMA and LTE assets, RIM, the Waterloo, Ontario-based manufacturer of BlackBerry smartphones, filed a complaint alleging that it was unfairly blocked from bidding on even ground.
RIM's interest in the assets is surprising since the manufacturer has generally stayed away from the network infrastructure market, but the company is arguing that a win for RIM would keep more jobs and more of Nortel's legacy in Canada.
The Nortel Retirees Protection Committee has also chimed in, expressing conecern over the deal, but not opposing it outright, as long as former employees receive a share of the proceeds.
Finally, questions have been raised about exactly which patents and technology Ericsson now lays claim to: While the older LTE patents and CDMA technology appear to be fully transferred, some other patents appear to be licensed to Ericsson through the deal, with the actual patents being auctioned off later.
An Ericsson opportunity at LTE's starting gate
None of those challenges appears insurmountable, however, and perhaps all are to be expected in the deal, which ended up hitting $1.13 billion, after an initial low-ball bid of $650 million from NSN.
The reward for all these headaches is an instant seat at the LTE table, after Ericsson had passed on making much investment in the technology.
"Ericsson has been a little bit of a laggard on LTE. In one of their earlier earnings calls, they pushed the notion that HSPA was their near-term strategy," Nolle said. "At the time, they didn't see any real urgency in getting an LTE position."
As a result, Ericsson fell behind in the technology's development, trailing Alcatel-Lucent, which remains a leader in the area, as well as NSN and even Huawei, the Chinese telecom equipment vendor that has shown signs of interest in gaining some North American marketshare.
The corporate climate at Ericsson has changed drastically, however, with Carl-Henric Svanberg, president and CEO, saying recently that his company is committed to "bringing the next generation of mobile broadband to the world with LTE."
Now, by leveraging relationships it already has with Verizon, Ericsson appears ready to stake its claim and even win some contracts that appeared to be headed to other vendors.
"Verizon has definitely already had LTE relationships, but they haven't done anything substanitive in terms of deployments," Nolle said. "One of the things that I've seen in the last two months or so, there has been some indication that some of the earliest wireless deals that were presumed to have been won, appear to have been un-won."
That means there is plenty of marketshare up for grabs, and as LTE spreads globally, European and Asian carriers are likely to look for past successes before choosing a vendor.
NSN in need of an LTE strategy
Ericsson was not, of course, the only vendor hoping for a jump-start into LTE.
NSN had raised its initial $650 million bid to $1.03 billion, aggressively pursuing the Nortel assets even after MaitlinPatterson and Ericsson upped the ante. Now, however, NSN will have to devise an alternative strategy to get up to speed on LTE.
"This is definitely a blow to NSN," Nolle said. Like Ericsson, much of NSN's success has been in emerging markets, but without some LTE experience for the future, even those might be up for grabs when those markets migrate to LTE, he said.
Nolle said the company could seek another LTE acquisition target or else find another way to gain LTE expertise quickly, but doing nothing was simply not a viable option.
"All of this is going to happen and happen fairly quickly in North America. And service providers are most comfortable dealing with companies that have already won deals and shown competence," Nolle said. "If you start losing up front, it's hard to win again."