RIM, Ericsson spar over Nortel wireless sale

Key players in an auction of Nortel Networks' wireless unit that was won by Swedish giant Ericsson told very different tales to a Commons industry committee Friday, with BlackBerry-maker Research In Motion Ltd. claiming certain conditions kept RIM from bidding.

Mike Lazaridis, co-chief executive of Waterloo, Ont.-based Research In Motion, said the government should review the $1.13-billion-US sale of some of Nortel's wireless assets to Ericsson, arguing the process was stacked against RIM.

The deal would give Ericsson assets, employees, contracts and patents related to Nortel's older wireless technology called CDMA, as well as next-generation Long Term Evolution, or LTE, wireless technology assets.

Toronto-based Nortel, now insolvent, is not the lone company working with LTE, but it is along with Ericsson one of the leaders in developing the technology.

LTE is expected to deliver top broadband speeds of 100 megabits per second for voice and data transmission to mobile phones — over 14 times faster than the top networks currently deployed across Canada.

The Nortel-Ericsson deal did not include the sale of patents related to LTE, but involved a licensing agreement for those patents.

The deal gives Nortel the flexibility to sell the patents later and was viewed by the company as the best way to maximize the value of the asset sales to creditors and pensioners.

Conditions undermine patent value: Lazaridis

The decision to not include those patents irked RIM, which had been in negotiations to buy the patents along with the remaining LTE assets.

"We almost had a deal," said Lazaridis.

Even more frustrating for RIM, said Lazaridis, was a condition that precluded RIM from bidding for those patents anytime over the next year. Those conditions undermined the value of the patents, said Lazaridis.

"It's as if you found a house that you discovered met all your needs and started working on a purchase sale agreement, and in the final hour you discover the owner had given a lifetime lease to another party and sublet that property to them," he said.

"What benefit would there be to consider purchasing that house?" he asked.

But Ericsson Canada representatives said their winning bid had no such condition preventing them from bidding on other Nortel assets.

Liberal industry critic Marc Garneau, a member of the Commons committee, said that revelation raised the possibility that either one the parties involved was mistaken, or that a different set of instructions existed.

The terms for the sale of Nortel's wireless unit were established when Nokia Siemens of Finland made a "stalking horse" bid July 19, requiring Ericsson and others to make a better offer.

Lazaridis said that in setting these auction conditions, Nortel created a process that blocked RIM and benefited Nokia, a company RIM competes with in the mobile handset market.

Nortel, Ericsson, say deal 'good for Canada'

Earlier in the hearing, Nortel executives defended the auctioning of the wireless unit to Ericsson, saying the sale is "a good deal for Canada" that will preserve jobs.

George Riedel, Nortel's senior vice-president and chief strategy officer, said the sale will help keep Nortel's employees working.

"Our customers told us that while we like your technology, but we're not going to buy it because we're not sure about your long-term viability," said Riedel. "So their advice was to get it into safe hands."

Ericsson Canada CEO Mark Henderson agreed, saying the deal will "keep Canada at the forefront of technological development with respect to next-generation wireless technologies."

Ericsson has publicly committed to bringing aboard 2,500 Nortel employees from the wireless unit's businesses dealing with CDMA and LTE. Henderson said Friday that Ericsson will also employ about 800 more people in Canada once the acquisition is complete.

As for whether the auction process was fair, Nortel legal counsel Derrick Tay said interested parties in bankruptcy-court proceedings had an opportunity to make their case for changes to how the auction was conducted.

Lazaridis acknowledged that RIM did not make any submissions during this process, saying his company felt it was "already too late."

Politicians concerned about loss of technology

A subtext to the hearings is whether the government should allow the loss of Canadian technology. Opposition parties and provincial officials have called on the government to review the sale, arguing it will lead to a loss of potentially leading-edge technology from the country.

Industry Minister Tony Clement said last week he was looking into whether to review the sale.

Under the Investment Canada Act, transactions involving foreign takeovers are automatically reviewed if their book value exceeds $312 million. Although the sale of the wireless unit was for $1.13 billion US, Nortel said the book value of the assets was only $149 million US.

Nortel, once the crown jewel of Canada's high-technology sector, filed for bankruptcy protection in January in Canada and the United States and is liquidating its assets. Courts in both countries approved the wireless sale to Ericsson on July 28.

The standing committee's involvement is reminiscent of similar hearings held last year after Canadarm-maker MacDonald, Dettwiler and Associates sold its space robotics and satellite units to a U.S. rocket and weapons maker.

That sale was eventually blocked by the government over national security issues related to MDA's Radarsat-2 satellite.