Nokia and Ericsson remain vulnerable in geopolitical 5G tussle

Recent US interest in the Nordic region has been striking. President Donald Trump openly floated the idea of buying Greenland from Denmark, before settling, for now, with opening a consulate in Nuuk. He also likes to take a jab at Sweden every now and then, whether it be over immigration or coronavirus.

But most fascinating of all could be the American intrigue over Nokia and Ericsson. 5G telecoms networks are one of the very few areas in technology where the US is almost entirely absent and it obviously hurts. Attorney-general William Barr said in February that the country should consider taking stakes in the Finnish and Swedish telecoms equipment makers either directly or through US companies.

The proposal was played down by other US government officials and rebuffed by Cisco Systems, the Californian networking equipment maker seen as one of the best candidates to do the buying. But even though the Covid-19 pandemic has eased the immediate pressure for a potential deal, the chatter refuses to go away. The US interest would put both companies, if not to say Finland and Sweden too, in an awkward bind.

The two Nordic countries are among the primary advocates in the EU for an open single market and free trade. However, they are waking up to the issues around a more assertive China and its considerable support for Huawei, the main rival to Nokia and Ericsson. It will be one of the principal global business and geopolitical tussles to play out in the coming years.

Nokia is, on paper, the most vulnerable. It misjudged the start of the 5G investment cycle and was both late with its own products and is still caught up in finishing the integration of its Alcatel-Lucent acquisition. It lacks a large anchor investor, with the Finnish state investment company Solidium the biggest with a 4.2 per cent stake. And it has suffered a period of boardroom and management turbulence with both its chief executive and chairman leaving this year amid grumbling over their performance in Helsinki.

Its share price is also depressed — despite rebounding by three-quarters from its coronavirus nadir in March, which was also its lowest in seven years, it now trades at about the same level it did in 2013 after selling its lossmaking mobile handsets business to Microsoft. Tytti Tuppurainen, the Finnish minister in charge of ownership steering, said in March before the worst of coronavirus hit: “We have a national interest in Nokia, but we don’t have any particular strategic interest.”

The question is, if push comes to shove, would Finland intervene? If not, there is a widespread feeling that France — home to the Alcatel part of Nokia — would. Still, senior Finnish business executives think Nokia could be vulnerable to the likes of a US private equity group, Cisco or Google taking a large minority stake.

Ericsson has been more successful in capitalising on the geopolitical importance of 5G in the early days of the rollout of the new networks. Its shares are close to double the level of their lows from three years ago when it underwent a large restructuring.

But it also has a large investor agitating for a deal. Cevian Capital, Europe’s largest activist investor, is the third-largest shareholder in Ericsson in terms of votes but the biggest in terms of capital, and has been vocal about the need for the Swedish group to consider a potential US takeover. Cevian has told the board that Ericsson would be weakened should the US plump for Nokia instead.

Inside both companies, there is a sense that the EU has yet to grasp fully the implications of the US and Chinese interest in 5G, not just in geopolitical terms but national security too. One executive complains that if Ericsson and Nokia had been French and German rather than Swedish and Finnish the issue would have been solved years ago.

There is also the question of whether American ownership would help them. Huawei is already excluded from the US, making it practically a duopoly, while neither Ericsson nor Nokia has made great headway in 5G in China. Neither Sweden nor Finland belong to Nato, and both Ericsson and Nokia executives privately say that perception of “neutrality” currently helps them at the margins.

A new Finnish chief executive-chair pairing at Nokia from August is likely to shake things up in an attempt to regain momentum from Ericsson. But both companies are likely to feel the pressure from their geopolitical importance for years to come.

richard.milne@ft.com