Bloomberg News

Telefonica Said Poised to Pick Alcatel on High-Speed Network

February 28, 2012

(Updates with share reaction starting in third paragraph.)

Feb. 17 (Bloomberg) -- Telefonica SA, Spain’s biggest phone company, is poised to award Alcatel-Lucent an order to build a nationwide high-speed wireless network as it seeks to win back customers of data-hungry devices lost to rival operators, two people with knowledge of the matter said.

Alcatel-Lucent, France’s biggest phone-equipment maker, is the front runner to supply gear for the network based on the so- called long-term evolution technology, said the people, asking not to be identified because the deliberations are confidential. Telefonica plans to unveil details on its network strategy later this month at the Mobile World Congress in Barcelona, one of the people said.

Alcatel-Lucent jumped as much as 4.8 percent to the highest price in more than three months. Telefonica may need to spend about 300 million euros ($394 million) to build the LTE network to cover about 65 percent of the Spanish market, based on the amount Vodafone Group Plc invested in Germany, according to Robin Bienenstock, an analyst at Sanford C Bernstein in London. Madrid-based Telefonica is seeking to bolster its Internet offerings as competition increases in a weakening home market amid the debt crisis.

“LTE will be important, especially in rural areas” where download speeds may be limited to about 2 megabits per second, Bienenstock said. “In the absence of significant cable coverage, Telefonica’s wireline customers are threatened by faster speeds available through LTE, hence the company has to build LTE to prevent further revenue declines in these areas.”

Trial Networks

A Telefonica spokesman declined to comment, as did a spokesman for Paris-based Alcatel-Lucent.

Alcatel-Lucent rose as much as 8.5 cents to 1.86 euros and traded at 1.85 euros as of 10:20 a.m. in Paris, valuing the company at 4.3 billion euros. Telefonica climbed 0.9 percent to 12.99 euros in Madrid, snapping two days of losses.

In September, Telefonica announced that Alcatel would help set up test LTE networks in Madrid and Barcelona for businesses and institutions. The plan was to extend high-speed services to all segments in the market from companies to consumers. At the end of September, Telefonica had 24.1 million wireless customers in Spain, a market with a wireless penetration rate of 129 percent, according to the company.

During the first phase, Alcatel-Lucent provided network infrastructure and China’s Huawei Technologies Co. supplied USB modems.

Ericsson, Nokia Siemens

Alcatel-Lucent is pushing fourth-generation wireless technologies to compete with Ericsson AB and Nokia Siemens Networks. The French gear maker was selected by AT&T Inc. and Verizon Wireless to deploy next generation networks in the U.S.

The company held a 30 percent share of the 4G equipment market at the end of September, according to data compiled by researcher Dell’Oro Group. It trails Ericsson, whose share is estimated at 44 percent.

Alcatel-Lucent is involved in 70 LTE deployment trials worldwide, according to its website, including with China Mobile.

--With assistance from Cornelius Rahn in Frankfurt and Jonathan Browning in London. Editors: Kenneth Wong, Simon Thiel

To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net; Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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