There are renewed stories that NSN is looking to sell about a third of itself to a private equity consortium. The stories aren’t indicating at this point how the share would be divided among the buyers, nor where it would come from in terms of Nokia and Siemens. It’s a classic good news versus bad news item no matter how it divides, though.
The good news side of this is that nobody buys something that’s worthless. NSN does in fact have strong assets, and certainly those assets could be leveraged to produce a good return on any private equity investment. The bad news is that if you’ve got good assets that could produce a good ROI, why aren’t they producing one for you, if not that you’re messing up? Clearly neither Nokia nor Siemens would be looking to sell off a stellar activity.
But there are reports that the “managed services” space that Alcatel-Lucent, Ericsson, and NSN all crave share in is expanding; Ericsson won a 3 Italia deal to revamp their IT processes. Not exactly a giant deal, and in any case it isn’t a broad endorsement of a outsource-based service-layer strategy. Operators tell us that they’re happy to outsource stuff that’s a cost center, that has no direct competitive impact, and that depends on skills they don’t have and don’t want to develop. They’re less sanguine about outsourcing what makes them profitable. I think that the question here is whether the private equity guys are drinking the PR Kool-Aid on managed services or whether they see that changes need to be made in NSN’s service-layer positioning and are confident they can make them.
We said in our 2009 analysis of vendors that NSN needed to sing prettier at the strategy level to create service-layer-strategic traction with buyers. We also said that such traction would be increasingly critical to success and to sustaining margins at lower layers in the network. The problem is that our surveys have shown that NSN lost credibility in the period since that analysis. While their worst dip was from the fall of 2009 to the spring of 2010, they’ve gained little ground between spring and fall, and in some key areas (like the radio network in mobile infrastructure) they actually lost slightly. There’s absolutely nothing wrong with their product line or their technical skills here—their problem is purely marketing/positioning.
That’s the centerpiece of the dilemma that confronts any organization who buys a piece of NSN. You can believe that managed services tides will lift all boats, including NSN, and that you see this great truth even though neither of the current partners does. Or you can believe that the problem of the service layer can be solved for NSN by singing their song more effectively. Given that, I’d be looking at creating an NSN choir if I were senior management there! Otherwise a deal could go sour simply by having the current NSN trends continue in the face of a newly aggressive position by one of the competitors.