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How Alcatel-Lucent Set a Telco Cloud Example

Mitch Wagner

For a long time, Alcatel-Lucent seemed to have only two kinds of news: bad news, and "Hey, we stopped the bleeding! That's good, right?"

The company has had its fair share of problems, which it's working hard to sort out, specifically with its Shift Plan, and there are signs it is turning a corner. (See Alcatel-Lucent Builds Future Around IP and Alcatel-Lucent Shifts Up a Gear to End 2013.)

But during the past few years Alcatel-Lucent (NYSE: ALU) has had some bright spots, and it's becoming clearer that, in one respect at least, the vendor has shown itself to be something of a trendsetter.

It appears to be about two years ahead of some of its main telco vendor rivals in structuring its business to take advantage of the opportunities in cloud, the telco data center, and next-gen IP platforms.

Ericsson AB (Nasdaq: ERIC), a day after announcing a 13% year-over-year decline in revenues in its networking division, has now split the division into two units focused on radio and cloud/IP, which it has named (daringly enough) "Radio" and "Cloud & IP." (See Ericsson Creates Cloud & IP Unit and Ericsson CEO's New Business Logic.)

In many respects, Ericsson is following in the footsteps of Alcatel-Lucent, which, using the expertise it had built up in its IP division, launched an independent, wholly owned business last year, Nuage Networks , to focus on providing SDN technology for cloud providers. (See Alcatel-Lucent Spins Up Its SDN, Defining SDN & NFV, and Alcatel-Lucent Has a Top-Secret SDN Startup!)

Last week, Nuage celebrated the one-year anniversary of its public launch by bragging about significant customer engagements and future strategic direction. (See Nuage Claims SDN Progress.)

So after years of getting beat up by the market, Alcatel-Lucent is, suddenly, looking like a positive role model.

The public springboard for its cloud and data center push was the development and launch more than two years ago of CloudBand, a set of software and IT assets for telcos deploying cloud services that was clearly a game-changer when displayed at the Mobile World Congress in February 2012. (See AlcaLu Unveils Its Carrier Cloud Play.)

Like Nuage, the kernel of that development came from the company's IP division, which stems from the 2003 acquisition of TiMetra, which Alcatel, and then Alcatel-Lucent, built from what was effectively a standing start to become one of the telco router market's leading players. (See Alcatel & TiMetra Seal the Deal, and check out the comments from the VC who thought Alcatel was being robbed...)

The challenge for Ericsson will be to emulate Alcatel-Lucent's early success in leveraging its IP assets and expertise to become a credible player in the telco cloud/datacenter sector, surely one of the most critical areas of development for operators right now. And to do that, Ericsson needs to do more than just create a separate business unit in name only, with different business cards but the same mindset: Instead, it needs to create a separate team with a different culture and modus operandi that will do something different. That's what Nuage has done.

Of course, Alcatel-Lucent and Ericsson aren't the only major vendors with the telco cloud market in their sights. Obviously, Brocade Communications Systems Inc. (Nasdaq: BRCD), Cisco Systems Inc. (Nasdaq: CSCO), Huawei Technologies Co. Ltd. , Juniper Networks Inc. (NYSE: JNPR), and others are chasing the same business. What Alcatel-Lucent did early on, though, was make a very clear corporate statement of intent, utilizing the appropriate assets to build a new business. That can also be seen as a risky strategy -- it could divorce an important area of development from the parent company. But Nuage has prospered and benefited from its relationship with AlcaLu's IP division. It's played its cards well.

The Nuage team this week took a virtual victory lap after what it said was a successful first year in business. It claims to have participated in more than 30 successful trials with Fortune 500 enterprises, cloud providers, and telecom companies, including French cloud provider Numergy, Canadian operator Telus Corp. (NYSE: TU; Toronto: T), global operator NTT Communications Corp. (NYSE: NTT), and infrastructure providers IDC Frontier and Evonte.

Nuage's business is to provide virtual networking technology to help carriers deploy cloud services. "Whether it's a public cloud or private cloud, the common thread is to allow business agility to deploy applications driven by the needs of the user to access applications anytime, anyplace, on any cloud," Sunil Khandekar, Nuage CEO, tells Light Reading. Compute virtualization allows users to simply log into a portal to fire up virtual machines; Nuage's technology is designed to make configuring virtual networks that easy.

For the future, Nuage is working on technology to connect networks in VMware and KVM environments, as well as transitioning from a data center focus to work across branch offices and business campuses.

It's a vision that aligns well with the market: If Alcatel-Lucent can execute well on that strategy, it will be the rare multinational business that manages to recover from a death spiral. And taking that leap of faith with its CloudBand and Nuage developments could look even smarter than it does already.

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to wagner@lightreading.com.

Basil Alwan, president, IP Routing and Transport for Alcatel-Lucent is a featured keynote at Light Reading's Big Telecom Event (BTE). Join us June 17 and 18 at the Sheraton Chicago Hotel and Towers. The event combines the educational power of interactive conference sessions, devised and hosted by Heavy Reading's experienced industry analysts, with multi-vendor interoperability and proof-of-concept networking and application showcases. For more on the event, the topics, and the stellar service provider speaker lineup, see Telecommunication Luminaries to Discuss the Hottest Industry Trends at Light Reading's Big Telecom Event in June.

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Mitch Wagner
Mitch Wagner,
User Rank: Lightning
5/1/2014 | 2:33:15 PM
What are AlcaLu's weaknesses? How might they fail, other than failure to execute, which is a threat to any good business model?
R Clark
R Clark,
User Rank: Blogger
5/1/2014 | 2:30:02 AM
Customer end
AGree. there's lots to like about ALU's good product set and strategy. The challenge will be at the customer end. Telcos take time to make big decisions, giving a chance for incumbent vendors to catch up to ALU.
Carol Wilson
Carol Wilson,
User Rank: Blogger
4/30/2014 | 2:10:47 PM
CloudBand success
Interesting link between CloudBand and AlcaLu's success with Nuage. 

Alcatel-Lucent seems to be back in the game, after trialing late in the third period. Oh wait, that's hockey. Sorry, I'm getting the two halves of my life confused.
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