In the ever expanding telecommunications industry, rife with new acquisitions, joint ventures and mergers, the recently formed Nokia Siemens Network has ventured into the fray to connect a projected 5 billion people by 2015.
The Nokia Siemens Network (NSN), a 50-50 joint venture (JV) between the two European telecommunications’ powerhouses that was pending agreement since last June, has a top three global position in the industry, valued at $31.6 billion.
The network was only launched in April this year, delayed due to Nokia’s concerns over bribery investigations at Siemens that had led to the arrest of several former Siemens employees, including Thomas Ganswindt, former head of the German company’s telecommunications equipment division.
Based in Helsinki, Finland, NSN’s chairman for the Middle East and Africa, Dr. Walid Moneimne, said the motivation behind the JV was to consolidate the two companies’ research and development teams, and become the world’s No.1 communications enabler.
The merger of Siemens’ networks business group and Nokia’s carrier-related operations is also aimed at cutting costs to make the companies more effective in the global market. Expecting to slash annual costs by an estimated $2 billion by 2010, most of the savings will come from restructuring and a 10-15 percent reduction in the network’s 60,000-employee work force. Annual sales are projected at $20.2 billion.
Big future looming
“We see the telecommunications market by 2015 at five billion customers either connected by fixed line or broadband—about 70% of the world’s population. Bandwidth will grow a hundred fold, so that gives you an idea of the future—a 50% increase in requirement,” said Moneimne.
The Middle East and Africa (MEA) will be a major focus of NSN’s rollout worldwide, in addition to the rapidly emerging markets of India and China.
With only 300 million people connected out of the MEA’s combined population of 1.3 billion, that figure is expected to double to 600 million by 2010 as penetration rates increase and access to networks expand. “We are talking of a huge opportunity and demand to deploy these networks in the MEA region,” said Moneimne.
The network’s entry into the region is opportune, coming at a time when major regional operators such as MTN, MTC, Etisalat and Qtel are expanding and increasingly operating in new markets. The growth of regional operators, particularly Kuwait’s MTC through its acquisition of pan-African mobile operator CelTel in 2005, gaining access to 14 African markets and investing billions of dollars to bring infrastructure up to scratch, will also be a boon for NSN’s regional strategy.
Region presents challenges to growth
NSN recognizes that the growth of the telecommunications sector in many markets in the MEA, particularly Africa, are being hindered by insufficient infrastructure and low incomes.
“There is a level of income that determines what people can do. Our goal is to work with operators to bring the best technology at the lowest price. On the other side of the spectrum are countries where there is a 100% penetration and handset replacement is high, so we will implement 3G networks and a major technology refresh as content (music, video) becomes more important,” said Moneimne.
In more advanced markets in the region, NSN are carrying out pilot tests on WiMax technology in certain cities, although Moneimne declined to say which ones.
“Our objective is really to see what the market needs, to put fixed and mobile together, 2G, 3G and WiMax solutions. All present a big investment for our customers,” he said.
The internet is also a major driving force for the network.
“When we look at 5 billion connected, the internet is at the center of that as all content is on the internet. Internet companies have a vested interest in this market,” Moneimne said.
However, expanding the network in Africa and the Middle East is not without its challenges,
Moneimne conceded. “Human resources are limited and it is a problem to deploy networks, particularly for issues of a high technicality,” he said. Lebanon was resultantly chosen as a platform for the region due to the high number of qualified and skilled employees and graduates.
Getting around the issue of inadequate electricity supplies in parts of Africa and the Middle East, NSN have been pioneering solar panels for sites, said Moneimne. “There is a lot of variation in how to use technology. Networks are not huge users of electricity, but will cause electricity generation expansion in certain countries,” he added.
But despite certain drawbacks, the relatively virgin markets of the MEA do present major opportunities compared to other markets worldwide.
“Despite the MEA having some of the highest penetration rates, it also has the least penetrated regions in the world and growing the fastest. Most developed countries are now just seeing mobile subscribers exceed fixed line subscribers, but in the MEA it’s already 75 million mobile subscribers,” added Moneimne.
The network has five product business units—Radio Access, Broadband Access, Service Core and Applications, IP/Transport, and Operations Support Systems—for fixed, mobile and converged networks.
“NSN has the size and resources to compete, but we also recognize that true competitiveness goes well beyond scale,” said Moneimne. The network’s competitiveness will draw on both companies’ research and development teams. Last year a R&D team that is now part of the network demonstrated the world’s first Long Term Evolution (LTE) radio access solution, transmitting data at a rate of 10 gigabits per second via an optical access network four times faster than rates achieved in the past.
Moneimne also said that there will be “major developments” in mobile phone handsets within the next two to three years. “Nokia calls them multimedia computers, so 3G networks are a must, but not just for 3G itself but the follow up, High-Speed Downlink Packet Access (HSDPA). The difference is in bandwidth speed: 2G dial up is roughly 100 bits, then the 3G at 384 kb/second and HSDPA 14 megabits a second. So clearly what all this brings is a HSDPA phone and network that will provide better customer experience and more available services,” explained Moneimne.
Although annual sales are projected at over $20 billion, the network announced in April that it only expects “slight” growth this year due to a “narrowing of visibility” and signs of a slowdown in spending by communications service providers in certain regions. As of April, the financial results of the network have been consolidated into Nokia.
