Peter Griffin: Nokia's strength in handsets helps clinch deal

COMMENT

So Nokia was left holding the aces at the end of the game. Well, nothing's official yet but that's the word spreading through the local telecoms industry.

The Finnish mobile giant appears to have been successful in scooping the 3G business of Vodafone New Zealand and Australia - the biggest telecoms deal on the map for the foreseeable future as far as this country is concerned.

Would a win for Nokia be a suprise? Probably not. Nokia built Vodafone's GSM network and the incumbent provider is always in the strongest position to alter the course of events - it knows the inside story.

But nothing was ever certain and Nokia's rivals, Nortel, Ericsson, Siemens and NEC certainly put everything they had into the tender process. However, as Vodafone's general manager of engineering Jeni Mundy told me a few weeks back, price was "absolutely critical" to the process.

The reverse auction run by Vodafone and used to select its vendor of choice appears to have been an exercise in bloodletting. Unlike most auctions the bidding started high and dropped day by day.

It may have been the case that Nokia's rivals were not willing to slash as much off the contract price, or that Nokia enjoyed better economies of scale in their incumbent position.

Where Nokia's strength comes in is that it is all-powerful in handsets. And it is handsets that have so far let down the 3G operators who have been brave enough to launch so far.

By bundling handsets with base stations and back-end infrastructure, Nokia would have been able to build a compelling deal - they became the safe and possibly cheap option.

Ericsson through its Sony Ericsson subsidiary and Siemens both play in the handset game but do not enjoy the economies of scale of Nokia. At the end of the auction they were probably just a bit too expensive for Vodafone's liking.

What would Nokia's victory mean for the other vendors? International experience has shown that the 3G network builds are often not solely given to one vendor. There will likely be opportunities for Nokia's competitors to get in on the action, maybe in providing services over the Nokia UMTS infrastructure.

But missing out on the biggest slice of the pie will no doubt be devastating for them. The tender was an enticing opportunity to end Nokia's domination at Vodafone.

For the also-rans it will limit the scale of their operations in New Zealand, if not Australasia.

For Nokia, it's a welcome piece of news from the southern hemisphere when all is not well in Helsinki.

Nokia's share price has taken a double hit with its reporting last week of a 16 per cent drop in profit for the first quarter and the earlier profit warning spelt the first signs of trouble. The profit drop was put down to lower than expected growth in handset sales.

At least Nokia can look forward to decent revenues flowing from this part of the world even if the exchange rate makes it their 3G success a modest-sized deal in the scale of things.