Nortel to sell off remaining mobile business

Nortel Networks is preparing to auction off its division that makes equipment for Global System for Mobile Communications (GSM) networks early next month, continuing the unloading of its businesses under bankruptcy reorganisation.

The sale may not generate as much interest as the auction for Nortel's larger Code-Division Multiple Access (CDMA) division earlier this year. On Nortel's 2008 financial results, a line for "GSM and UMTS solutions" showed revenue of about £1bn, compared with nearly £1.4bn in CDMA revenue. More importantly, Nortel sold off the Universal Mobile Telecommunications System (UMTS) portion of this business to Alcatel-Lucent, eliminating a key upgrade path from its GSM offerings.

GSM is the most widely used 2G cellular system in the world, but many GSM operators have upgraded to 3G technologies such as UMTS and High-Speed Packet Access or are expected to. The division Nortel is putting on the block also includes GSM for Railways (GSM-R), a specialised version of GSM for railway operators' internal communications.

Equipment makers may hesitate to buy the GSM business because they won't get a corresponding set of UMTS products to offer their carrier customers a smooth upgrade path, said Yankee Group analyst Phil Marshall.

"The value to a traditional incumbent infrastructure player is somewhat limited," Marshall said. However, an up-and-coming network provider such as China's ZTE or Huawei Technologies might acquire the unit to gain the business of carriers currently using Nortel, he said.

GSM-R is a growing technology that is taking the place of proprietary radio systems, Marshall said. But because it is a low-volume niche technology, it might be hard to run that part of the business profitably without a good set of complementary high-volume products, he said.

In July, Ericsson won the auction for Nortel's CDMA business with a bid of £710m. That acquisition is expected to expand Ericsson's presence in North America, which is Nortel's home base and the home of two of the largest CDMA operators, Verizon Wireless and Sprint Nextel.