Ericsson said yesterday it would buy the bulk of once-mighty rival Marconi for £1.2 billion as it hopes to benefit from booming demand for fixed and mobile broadband internet.

Ericsson, the world's biggest maker of mobile phone network equipment, said the deal to buy assets representing 75 per cent of Marconi's turnover will help it supply the world's telecoms operators which are seeking ways to deliver broadband internet and services to subscribers in the home, office or on the move.

Marconi's contribution in this so-called fixed and mobile convergence is its strength in the transport of voice and data over medium to long distances with its optical switches. Ericsson, meanwhile, dominates global sales of radio access equipment.

"The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case," Ericsson Chief Executive Carl-Henric Svanberg said in a statement.

The Swedish company said it would probably need to reduce the 6,700-strong workforce at Marconi, named after the Italian radio pioneer, by around 1,000 people.

Ericsson shares were up 1.9 per cent at 26.60 crowns after the news while Marconi climbed 3.7 per cent to 364.97 pence.

Ericsson said it would pay 16.8 billion crowns, with most of the cost being for intangible assets such as brands, trade marks and patents, showing the value of the Marconi name even as it has fallen on hard times.

In pounds sterling, the purchase price was £1.2 billion.

"This is a fairly appealing deal," said one Swedish analyst who declined to be named.

He said that if Ericsson believed Marconi could be made profitable it was better for the Swedish group to spend some of its 40 billion crown cash pile on the deal than sit on it.

Five years after the bursting of the internet bubble, Ericsson stated that the best has yet to come.

"The upgrade to broadband will lead to a massive increase in data traffic. As a consequence, transmission capacity in telecoms networks will have to be dramatically increased," it said in a statement.

A similar expectation in 1999 and 2000, many years before broadband internet became popular with consumers, led to heavy overinvestments by operators and a boom-bust in which Ericsson nearly collapsed and Marconi lost its lustre.

Marconi, Britain's last remaining telecoms equipment maker, saw its future thrown into turmoil in April when it lost a key contract from its largest customer, BT Group.

Ericsson, however, retained its global lead in mobile systems while operators built their first high-speed wireless networks for mobile broadband services such as video.

Mr Svanberg, whose group slashed its workforce in half following the downturn, said bringing Marconi into the Ericsson fold was an "emotional moment".

"Marconi invented the radio and that is basically the reason we all are here," he said in a conference call.

What is left of Marconi after the deal would be called Telent. It would also retain Marconi's UK pension scheme.

"Ericsson's fixed network business combined with Marconi's broadband access offering and Marconi's long-standing relationships with leading fixed operators will reinforce Ericsson's market position," Ericsson said.

It said the acquisition would add roughly one billion pounds in sales and was expected to have a neutral effect on Ericsson's earnings per share in 2006 with a positive contribution from 2007.

Mr Svanberg said Ericsson would be able to bring up Marconi's profit margins to the level of the Swedish company, although the initial effect of the deal would be dilutive.

Ericsson reported an operating margin of 21.6 per cent for the third quarter of 2005.    

Job cuts were unavoidable, Mr Svanberg said, with 1,000 staff who could be at risk at Marconi's facilities in Britain, the United States, Germany and Italy. Some 6,670 Marconi employees are being transferred to Ericsson as part of the deal.

Marconi chief executive officer Mike Parton said job cuts in the remainder of the group's business would be in the "tens". Telent is expected to have some 2,000 employees after the deal.

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