The outfit is trying to think how it can grow after the planned sale of its handset business to Microsoft. While no formal talks are underway with Alcatel-Lucent, Reuters claimed that Nokia held “on again, off again” discussions about buying Alcatel’s wireless business as recently as late 2012 and that the two companies could still come back to the table.
Both companies have struggled to compete with market leader Ericsson, and Huawei and ZTE. With Microsoft buying Nokia’s phone business and license its patents for $7.3 billion, the former rubber boot maker has said it will evaluate strategy for its remaining operations before the deal closes.
With consumer demand for wireless data services like mobile video streaming growing significantly, network operators say they need access to more wireless airwaves soon or they will risk running out of capacity to support their customers.
Since it may be years before enough new spectrum becomes available, carriers are looking for technology solutions now to try to avoid network congestion that could send customers away in frustration or stunt industry-wide revenue growth.
As a result, operators came to the CTIA annual wireless showcase in New Orleans this week keen to discover how they might use existing spectrum more efficiently.
One promising area is so-called small cells – mini versions of the giant wireless broadcast towers that send and receive all the cell phone calls carried by today’s networks. Installing these small cells in between the bigger towers will boost capacity in those areas.
Since these devices have smaller price tags and are more compact than traditional cell sites, operators will be able to place them more easily in buildings or even on lamp posts on busy city streets.
Various types of small cells were on display by network equipment makers at the New Orleans trade show. Wireless carriers do not expect the first products to come to market until later this year, and they say it is still too early to estimate total costs for using the technology.
AT&T Inc and Sprint Nextel, the No. 2 and No. 3 U.S. mobile providers, both said at the CTIA trade show that they already have plans for small cells. Market leader Verizon Wireless and No. 4 player T-Mobile USA say they are looking at the technology and eyeing future developments.
Telecom operators globally are expected to slash spending on their networks this year, hitting equipment makers that were only just beginning to recover from intense price wars and the last economic downturn.
European operators are likely to be more cautious as recession looms and consumers are less willing to splurge on high-end smartphones, while carriers in China and the United States slow their frenetic pace of mobile investments.
The shift will pressure long-struggling mid-sized gear makers like Alcatel-Lucent SA and Nokia Siemens Networks, which are more vulnerable than market leader Ericsson or low-cost Chinese player Huawei.
Some smaller equipment vendors such as Juniper Networks Inc and Acme Packet Inc have already issued profit warnings in recent weeks, blaming slower spending at big U.S. carriers like Verizon Communications Inc and AT&T.
Alcatel-Lucent also had to scale back its margin and cash flow targets for 2011, and Nokia Siemens Networks announced mass layoffs and restructuring.
Behind the warnings is a economic slowdown that began in the second half of last year and has already begun weighing on telecom gear makers’ shares.
“While it won’t be as bad as 2009 when operators drastically cut their spending, we expect only very weak growth this year and continued pressure on prices,” said Cedric Pointier, a portfolio manager at Natixis Asset Management, which holds Alcatel-Lucent, Nokia and Ericsson shares in its funds.
“In tough economic times, telecom operators choose between seeking growth and protecting cash flows, and they usually just adjust their capital expenditures to maintain cash flow.”
Telecom network investments tend to follow economic cycles, as operators hold back spending when their customers become more price conscious.
In recent years, however, underlying demand for new equipment has grown as networks strain under a rising data load brought on by Internet-connected smartphones and tablets.
Operators especially in the United States have invested heavily in mobile networks to keep up, increasing spending BYaround 10 percent last year, but this year analysts expect many to be more prudent.
Microsoft’s patent application for Legal Intercept was filed in 2009, well before the company’s $8.5 billion purchase of Skype this May. The patent was granted last week.
From Microsoft’s description of the technology in its patent application, Legal Intercept appears similar to tools used by telecommunication companies and equipment makers to comply with government wiretap and surveillance requests.
According to Microsoft, Legal Intercept is designed to silently record communications on VoIP networks such as Skype.
According to Microsoft, Legal Intercept fixes the gaps in current monitoring tools that are designed mainly for intercepting Plain Old Telephone Service (POTS). “With new Voice over Internet Protocol (VoIP) and other communication technology, the POTS model for recording communications does not work,” Microsoft noted in the patent application.
Michael Froomkin, a professor of law at the University Of Miami School Of Law, said that from the patent description it sounds as if the technology would allow Microsoft to do is make Skype CALEA capable.
CALEA (Communications Assistance for Law Enforcement Act) requires telecommunications carriers and makers of communications equipment to enable their equipment so it can be used for surveillance purposes by federal law enforcement agencies.
But the implications of the technology are much broader, Froomkin added. “First, making a communication technology FBI-friendly means also making it dictator-friendly, and in the long run this is not good for movements like the Arab Spring,” he said. “Second, experience shows that building in back doors invites exploits.”
A Microsoft spokesman said the company would not comment on the technology.