update The telecoms industry can expect to ring in more merger deals as vendors grapple with the emergence of competitive players in the market, an analyst says.
In the past year, there have been various courtships--with some leading to marriages--between telecoms equipment makers and operators alike. More recently, in June, Nokia and Siemens announced a union between their network infrastructure businesses.
The merger, following a similar deal between Lucent and Alcatel, creates one of the largest telecoms equipment companies. The new entity, called Nokia Siemens Networks, will become the second-largest company in mobile infrastructure and services, and third-largest in fixed infrastructure and in the overall telecoms infrastructure market, according to a study released by telecoms consultancy Ovum in June.
Commenting on the telecoms consolidation wave, David Kennedy, research director at Ovum, said: "What we believe is driving this consolidation is the emergence of major new competitors in the market, and Huawei is the obvious example of that."
Kennedy said Huawei has pushed up the level of price competition in the marketplace and is developing technological innovation very quickly. Coupled with the fact that the company plays in a large domestic Chinese market that allows it to develop economies of scale, he noted that Huawei is "a disruptive influence in the vendor space."
As a sign that the Chinese company has been encroaching on the turf of Western competitors, Huawei won an estimated US$100 million contract to build a 3G cellular network for Telfort, a Dutch operator that had previously been an Ericsson customer. Early last year, Huawei also beat Motorola and Ericsson to secure a US$187 million contract to build a 3G network for Communications Authority of Thailand (CAT), one of the two largest state-owned telecom carriers in Thailand.
Kennedy said: "The long-standing vendors realize that as the global market is expanding, they need to maintain scale advantage and the mergers are designed to achieve that."
"In future, we think there will continue to be further mergers. One of the major vendors that have no [merger] partner right now is Motorola, and we think they will be looking around for opportunities." he added.
In fact, Motorola on Jul. 25 this year announced a new collaboration with Huawei to bring an enhanced and extensive portfolio of 3G and HSPA (high speed packet access) infrastructure equipment to customers worldwide.
Part of this joint venture is the creation of a joint research and development center in Shanghai, where employees from both companies will collaborate on the development of 3G products and services. Both parties expect this relationship to provide time-to-market advantages while enhancing their ability to rapidly evolve their 3G portfolios for the global market.
A Hong Kong-based Huawei spokesperson told ZDNet Asia: "Joint ventures are common for companies trying to enhance their competitive position. The telecommunications industry will continue to evolve to become what is considered a 'traditional' industry, where profits growth stabilizes over time. This means that success will depend more on whether companies can deliver an overall superior value proposition."
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