Marconi Gains Optical Ground with Acquisition of Nokia Optical Business

"A perfect fit," is how one analyst describes Marconi Communications' (Coventry, UK) decision to purchase Nokia's (Helsinki, Finland) synchronous digital hierarchy/dense wavelength division multiplexing (SDH/DWDM) transport equipment business.

Marconi, a subsidiary of General Electric Co. (London), will pay Nokia Finnish Marks 430 million on signing and regulatory approval and up to Finnish Marks 192 million based on the division's future business performance. In return, Marconi will get Nokia's Synfonet SDH/DWDM transport product line and its existing customer base. The two companies have also signed an agreement that establishes Nokia as an OEM reseller of the Synfonet line for key customer accounts that use Nokia's complete telecommunications system offering.

Motivations
"To understand the deal, you have to look at the motivations of the two companies," explains Barry Flanigan, senior consultant at Ovum, a telecommunications consultancy based in London. "Nokia wants to concentrate on their core business, which is wireless. They've been in the transmission market, but have decided to get rid of that business."

"Marconi, if they want to continue to be a player in the SDH market, they have to gain in their DWDM ability. They've lagged behind other large players such as Lucent and Nortel. The quickest way to gain ground is to acquire somebody else, and Nokia has been involved in [SDH/DWDM] with some success. Obviously it was a good fit."

Gaining customers as well as technology is a key component of Marconi's plan, according to Mike Parton, Marconi Communications chief executive. "The acquisition of this business brings Marconi new customers and provides us with exciting opportunities for growth" Parton says. "The transfer of Nokia's UK research and development personnel will further reinforce our position at the forefront of technological development."

Gaining ground
More than just increasing Marconi's optical networking and transmission product offerings, the acquisition of Nokia technical expertise will give Marconi a bridge to the next generation all-optical network, Flanigan speculates. "Marconi's trying to look at the future evolution of that market, and that's SDH with DWDM crossconnects and all optical networks. Routing and switching layers and the DWDM layer are going to melt into one in the next generation network. They need to build up that ability."

Marconi Communications released their first SDH/DWDM solution, the SmartPhotonix family of carrier-grade transmission systems earlier in the third quarter of this year. However, the system lags behind similar systems from Marconi's major competitors, including Lucent, Nortel and Nokia's SDH configurable DWDM network Synfonet, according to Flanigan.

Regardless of the Nokia acquisition, Flanigan does not expect Marconi to go head-to-head with Lucent and others in the long-haul optical network business. Instead, he believes the company will create a robust next generation all-optical routing and switching network. "The remaining question is one of management," poses Flanigan. "How are they going to integrate the two: SmartPhotonix and Synfonet?"