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Brussels, 2 March 2011

Mergers: Commission approves the acquisition of Nortel's Multi-Service Switching business by Ericsson

The European Commission has approved under the EU Merger Regulation the proposed acquisition by Swedish company Ericsson over the Multi-Service Switching Business of Canadian Nortel Network Corporation. After examining the operation, the Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.

Telefonaktiebolaget LM Ericsson ("Ericsson") provides telecommunication equipment and related services to mobile and fixed network operators. It comprises four main business units: Networks, Global Services, Multimedia, and CDMA and GSM Business.

The Nortel Multi-Service Switching (MSS) Business is globally active in the sale of MSS switches to service providers delivering in real-time a variety of data, voice, and video services. The MSS Business also provides certain associated services such as maintenance and support services.

Both Ericsson and the Nortel MSS Business are MSS suppliers. Switches are devices used in the transmission of data. Ericsson is also active in the provision of complete networking solutions to telecommunication operators mostly in the GSM, CDMA, UMTS/W-CDMA (an interface standard used in 3G) and Voice over Internet Protocol (VoIP) technologies, where MSS are used as an input.

The Commission's market investigation identified no competition concerns in relation to the parties' overlapping activities in the market for MSS switches. MSS switches are only sold as replacement, add-ons and extensions to existing customers as there are newer switching technologies.

The Commission's market investigation however revealed that the Nortel MSS switches are a critical input for Alcatel-Lucent, which is one of Ericsson's main competitors in the downstream market for UMTS/W-CDMA mobile network equipment. MSS switches are proprietary in nature and Alcatel-Lucent needs Nortel MSS switches for its UMTS/W-CDMA business, which it acquired from Nortel in 2007.

In the course of the Commission's investigation, Ericsson and Alcatel-Lucent reached an agreement to extend the supply contract between Alcatel-Lucent and Nortel addressing all potential competition concerns in relation to the continuity of supply of MSS switches. The Commission found that Ericsson, which is the leading player in the market for UMTS/W-CDMA, would not have the ability to cut off supplies of one of its competitors.

The Commission's investigation also confirmed that the proposed transaction would not lead to any competition concerns in the downstream markets for GSM or VoIP network equipment, given the limited market position of Ericsson's competitors who depend on Nortel MSS switches and Ericsson's lack of incentive to engage in such a strategy.

The Commission therefore concluded that the transaction would not significantly reduce competition in all or part of the European Economic Area (EEA).

The proposed transaction did not meet the thresholds of the Merger Regulation, but was referred to the Commission for review following a request from the merging parties. It was notified to the Commission for regulatory clearance on 13 January.

Merger control rules and procedures

The Commission, in 1989, was given the power to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Art 1 of the Merger Regulation). The Commission clears the vast majority of mergers without conditions and only accepts remedies or prohibits mergers when the notified transaction would lead to a significant impediment to competition and make consumers worse off.

From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

EU merger clearance does not prejudge the result of other possible probes under State aid or antitrust rules.

More information on the case is available at:

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