Nokia + Alcatel = ?

By Sara Brown

Today, Nokia and Alcatel-Lucent announced plans to merge, becoming the world’s largest telecommunications equipment supplier. However, we’re not so sure one plus one equals 2 in this case.

Combining the revenues of the two players for 2014 adds up to $27 Billion, while the official announcement identifies potential cost savings in excess of $1 Billion. Many are placing a potential market value of the combined entity at around $40 Billion. However, achieving such savings and creating such value may be a challenge, particularly after promising the French government that no French jobs will be lost in the merger. What these figures do not account for at all is the cost of the integration itself.

We are particularly concerned about the ability of the determined Finns to win over the hearts and minds of their new 7,000-person French workforce. We are talking about two very different cultures both within the companies themselves and beyond. Having worked for a French company for some time, I can guarantee there will be some bumps in the road. I’m not Finnish, but I do view punctuality as a sign of respect. Little did I know that the French view greeting every single person I encountered on the way to the meeting (complete with bises and small talk) was more important to my French colleagues. It cost me six months of good will to learn that lesson –all the time fuming that they were late, while they considered me inexcusably rude for rushing past without any more than a brusque, “I’m late.” This is just one minor (read 15 minutes, on average) difference. There are lots more.

Back to the government angle. With a high regard for engineering and technology, France surely considers Alcatel an industrial jewel. Still, given its history of protecting such business entities, sometimes at the cost of similar acquisition agreements (check out the recent history of Dailymotion and Alstom), it is surprising –and enlightening— to hear France’s Economy Minister Emmanuel Macron declare, “It’s a good deal for Alcatel-Lucent because it’s a deal for the future.” Having secured the promise of no job loss in France during a face-to-face meeting with the CEOs of both companies and President Francoise Holland, Macron must be delighted to have found a life raft for this sinking ship. The question remains, however: For how long can those 7,000 jobs be preserved?

By the way, Nokia investors are none too pleased about this friendly exchange with the French government. Unsurprisingly, they are concerned about the potential cost of this appeasement.

In his comments to the press, Nokia CEO Rajeev Suri states, “This is the right deal with the right logic and at the right time.” We can see how that may appear to be the case, with the Chinese dragon, Huawei, breathing hot and heavy down their necks, there’s no doubt European providers are under pressure to cut costs –both internally and for their clients. Then again, there has been talk about such a merger among industry insiders for years. One can’t help but wonder: If this had happened five, ten, twelve years ago, how might the landscape be different? Perhaps we’d see Nokia/Alcatel firmly entrenched in the number one spot. Maybe Nokia would even have gotten more for their handset division. Maybe we wouldn’t be spending so much time discussing two also-rans.

The official announcement specifically identifies the Internet of Things as a critical factor to the deal and, perhaps more importantly, to the future of the combined company. Suri put it this way: “Together Alcatel-Lucent and Nokia intend to lead in next generation technology and services with the scope to create seamless IP connectivity for people and things, wherever they are.”

Are they too late, or is there a chance for them to truly unseat Ericsson and fend off Huawei? Only time will tell. Whatever happens, Nokia, remember, if the Alcatel team shows up 15 minutes late to the meeting, it’s really no reflection on you.