Mar 14, 2011 05:30 PM

Industry Rattled by Uncertainty in Nokia Ruling

(Beijing) – China's Ministry of Commerce has decided to extend the anti-trust investigation over Nokia Siemens Networks' (NSN) attempt to acquire Motorola's wireless division for US$ 1.2 billion, prompting pessimistic forecasts in the industry of the deal.

In January, China's largest telecom equipment maker Huawei filed a lawsuit against NSN in U.S. courts, alleging that the acquisition would compromise Huawei's business secrets and intellectual property rights, which include GSM, UMTS and core network service technology, valued in the billions. The court later ruled in favor of Huawei.

The extended review could be due to NSN's failing to clarify Huawei's stake in the acquisition, but analysts say the delay has aroused grave concerns within the industry.

Experts say the acquisition's approval has the potential to radically alter the competitive landscape of telecommunication industries in markets beyond China and create obstacles for overseas expansion by Chinese companies. If given the green light, NSN's share in the fiercely competitive North American market could be boosted up to third place, making the company the largest foreign supplier of wireless infrastructure equipment in Japan. The change would have a direct impact on the competitive status of Chinese telecommunication companies.

Many view the attempt as part of NSN's plan to regain its position as the second-largest telecommunication company in the world, a position that Huawei has occupied since 2009. 

The acquisition will also give a competitive advantage to NSN in developing LTE, a new telecommunication technology. At present, Motorola owns many crucial patents in LTE research and pioneers the two most important LTE research projects, KDDI and China Mobile's TD-LTE.

The acquisition would not drastically increase Motorola's currently marginal presence in China's 3G telecommunications market, given NSN's current market share. The company now ranks fourth in China with a roughly 8 percent market share, trailing behind industry giant Huawei and runner-up ZTE, which, in combination, account for over 50 percent of the market. 

Many analysts believe the Ministry may either forbid the acquisition as a whole, or a conditional approval will be given. Motorola may be required to sever business operations related to Huawei's technologies, said Wang Xiaoye, a professor of Chinese Academy of Social Sciences who is also an anti-trust law consultant to the Legislative Affairs Work Committee under the State Council.

In January 2009, Pfizer Pharmaceuticals Ltd., an American pharmaceutical company was required to sell its Chinese business of swine vaccines before acquiring Wyeth, another significantly influential pharmaceutical company, in order to clear the Ministry of Commerce's anti-trust regulations.

Losing access to Huawei's technologies, however, may cause NSN to withdraw from the acquisition, said Wang.

The acquisition was proposed in July 2010 and scheduled to finish before the year ended. The expected completion date has been postponed to the first quarter of 2011 while awaiting Chinese regulatory approval.

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