Sun, Dec 12, 2004 - Page 12 News List

Telecom merger talks worry Motorola

MARKET RESHUFFLE The merger between the two telecom giants could be bad news for Motorola -- but music to the ears of competitors like Qualcomm and Lucent


Merger talks between wireless carriers Sprint Corp. and Nextel Communications Inc. aren't sounding very jolly to one equipment supplier: Motorola Inc.

For years, the Schaumburg, Illinois, provider of wireless products and infrastructure equipment has enjoyed an almost exclusive relationship with Nextel -- supplying networking equipment and handsets to the wireless carrier. That advantageous agreement would end if Nextel joins forces with Sprint, industry experts say.

By contrast, a merger would likely provide a boost to Sprint's suppliers: Qualcomm Inc., Lucent Technologies Inc., Nortel Networks Corp. and handset makers such as Samsung, Audiovox Corp. and others.

The cause for the unequal distribution is a likely technology switch for Nextel, the smallest of the national wireless carriers. The Reston, Virginia, company has been something of a technology maverick, using a unique iDEN standard for its network and proprietary "push to talk" service. Sprint, on the other hand, has been running its network on CDMA -- the same standard that Verizon Wireless users.

In order for the two companies' networks to work with one another, it would be easier for Nextel to switch to CDMA rather than the other way around, experts said. Sprint a has large nationwide network that would cost a lot to convert or rebuild.

A Sprint conversion would be like "somebody wearing too many colors ... too many technologies are not a good thing," said Rick Black, an analyst at Blaylock & Partners.

Adding to the likelihood that Nextel will convert to CDMA is the fact that the company has already been looking into switching its platform technology. Nextel has been testing -- with Motorola -- a new wireless standard based on CDMA. The company has also been testing a unique technology, called OFDM, with New Jersey-based startup Flarion Technologies.

"Obviously, there is still lots of uncertainty about how they will go through consolidation," said Bill Choi, said an analyst at Kaufman Brothers. A Nextel CDMA conversion would provide a windfall to whatever company gets to supply the technology -- whether that's Motorola, Lucent, Nortel or whoever.

An area with more certain impact for suppliers if Sprint and Nextel merge is handsets. Motorola is currently the sole handset provider to Nextel -- and the handsets it does sell to the carrier are also its most profitable. Sprint buys phones from a variety of makers including Motorola, but also Samsung, Audiovox Corp. and others.

Motorola will likely "wrangle themselves good market share" with a combined company, but it wouldn't be the same kind of advantage it's seen in the past, Choi said. Meanwhile, a merger means that Sprint's phone providers would be able to get business from a customer who was previously off-limits.

But the biggest winner of the combination would be Qualcomm, which already licenses and makes chips using CDMA technology to Sprint. Qualcomm has also been working with Nextel for the past two years on developing a new push-to-talk technology, QChat, that can work on a CDMA platform.

A merger would likely mean that Qualcomm "could collect royalties on additional CDMA handset sales and sell most of the chipsets for handset sales," Wojtek Uzdelewicz, a Bear Stearns analyst, wrote in a note.

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