Shake-Up In 4G LTE Market Creates Long-term Investment Opportunies

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Long Term Evolution, or LTE, is a 4G wireless broadband technology developed by the Third Generation Partnership Project, or 3GPP, an industry trade group. 4G LTE technology offers faster data transfer, as compared to existing 3G networks, by using radio waves over the same bandwidth. LTE technology is designed to be scalable and not clash with 3G services while using the same infrastructure for their functions. 4G LTE is expanding fast in 2013, and is expected to be booming in the next few years. 5 companies, including China Mobile, Clearwire, Sprint Nextel, Nokia, and Alcatel-Lucent will benefit from fast expansion of 4G LTE in the next few years.

There are two types of LTE: TD-LTE and FDD-LTE. TD-LTE has been tested in France, Ireland, Poland and is currently aggressively deployed in China. Networks in Germany, Austria, Scandinavia and the Baltic use FDD-LTE. Verizon Wireless, owned by Verizon Communications and Vodafone Group PLC, also uses FDD-LTE in the United States. 

TD-LTE

For TD-LTE, the expansions are led by China Mobile(NYSE: CHL) in China and Clearwire (NASDAQ: CLWR) in the United States. Clearwire intends to have its first wave of TD-LTE 5,000 cell sites up and running by June, 2013. Clearwire has been working with Sprint Nextel (NYSE: S), its majority owner and the largest wholesale customer, to identify sites for Clearwire's planned TD-LTE network. Clearwire plans to deploy its LTE Advanced-ready TD-LTE network mainly in urban areas, where the traffic is heaviest. Softbank's $20B take-over deal of Sprint Nextel is progressing despite the delay by Dish Network, the Department Of Justice, and the FCC. As reported on February 9, 2013:

"Federal Communications Commission is moving ahead with its original timetable for reviewing SoftBank's proposed $20 billion acquisition of Sprint Nextel - dismissing Ergen's request for a "pause" while Dish pursues a deal for Sprint partner Clearwire."

Despite Dish Network's objection, the FCC is moving ahead with its review, putting Sprint and SoftBank on target to pull off the complex deal in June or July 2013. The FCC is expected to finish the review within 180 days. Industry experts also expect that Softbank will be able to alleviate concerns and win DOJ approval. It would be in Sprint's best interest to complete the deal as soon as possible. Sprint just reported losses of $1.3B in Q4, 2012 on February 7. The company needs to focus on its long-term turnaround efforts, and to expand its network to 4G LTE via a Clearwire buyout with Softbank's capital backing. On February 6, 2013, Softbank announced plans to sell up to $3.2B in bonds to help fund the acquisition of Sprint.

Nokia Siemens Networks in the spotlight

Nokia Siemens Networks or NSN, a joint venture between Nokia (NYSE: NOK) and Siemens, is a multinational data networking and telecommunications equipment company. Nokia Siemens Networks had been turning around and achieving the largest increase for LTE market share in recent quarters. However, talks to end the six-year-old venture between Nokia and Siemens have intensified. Discussions have accelerated as a shareholder agreement comes up for renewal in April. There are two possible options: The first one is a 100% buyout by Nokia, as Siemens has repeatedly said it wants to get out the venture. However, Nokia has been preserving capital by suspending its dividend, and it may not be the best cash allocation for Nokia, at least in the short term, to acquire the remaining stake while NSN has an enterprise value of as much as $13.4B. The second option is to get Alcatel-Lucent (NYSE: ALU) involved. However, Alcatel-Lucent is having its own troubles, as the company just reported a $1.83B net loss in Q4, following a hefty impairment charge. Additionally, Alcatel-Lucent's CEO, Ben Verwaayen, announced his resignation. Nokia Siemens Networks will continue to be in the spotlight at least until the upcoming shareholder agreement is settled.

Bottom line

In short, despite the recent shake-up, LTE will definitely be booming for the next few years. Investors can start to review and establish long-term positions. The recent shake-up may provide some good buying opportunities. Conservative investors should consider an investment in a stable company with strong cash flow, such as China Mobile. Aggressive investors might want to invest in turn-around stories, such as Nokia and Sprint Nextel.


NickChiu is long on VOD, CHL, and S. The Motley Fool recommends Vodafone. The Motley Fool owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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