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AlcaLu's New Vision: More Convergence

Ray Le Maistre

Ben Verwaayen today set out the roadmap for Alcatel-Lucent (NYSE: ALU)'s future, and it revolves around combining the best attributes of the Web with the best attributes of communications networks. (See Verwaayen Unveils AlcaLu's New Plan .)

At the same time, of course, Verwaayen wants to make money and turn Alcatel-Lucent into "a normal company."

Say no more!

Essentially, Verwaayen believes there's money to be made from the Web world and the telecom world (carriers and large enterprises) by bringing together the "creativity" of the Web, which has evolved into the interactive and collaborative environment we know and love (or don't understand) today, with the "trust guarantee" to be had from advanced communications networks.

The best of both worlds, you see?

Currently, AlcaLu's main customer base -- the telecom operators of the world -- are (and Verwaayen did not use this phrase) getting stiffed by the growing volumes of "over-the-top" Web traffic, such as streaming video. It's increasing traffic on the carriers' networks but not generating additional revenues.

At the same time the Web community, in Verwaayen's eyes, is constrained by best-effort service delivery, security issues, and clunky e-commerce models.

The optimum scenario, then, is (for example) consumers to be able to buy an online streaming video (to be viewed on any type of screen) with guaranteed service quality, with just one click of a mouse, and with any associated payment being handled behind the scenes by carrier-grade billing, rating, security, privacy, and revenue assurance technology. That would benefit everyone involved -- the consumer, the carrier, and the service/content owner.

AlcaLu's CEO sees that model, which requires better networks, as the future, and he wants his company to be at the heart of the networks that can deliver the dream.

Technology focus
With that goal in mind, Verwaayen and his new management team have identified the areas where Alcatel-Lucent should focus its resources, and where it thinks it can win.

Those areas are: zero touch, high capacity, low cost-of-ownership optical transport capabilities; service-aware, programmable IP technology; and products that enable "broadband everywhere," whether over fixed or wireless connections.

As a result, AlcaLu is to invest in optics, IP, VDSL, and GPON for fixed broadband; and WCDMA (including all HSPA-based enhancements), CDMA EV-DO, and LTE for wireless. IP Multimedia Subsystem (IMS) capabilities, enhanced packet core capabilities, and open standards-based application development environments are also key focus areas.

Some analysts expressed surprise that CDMA EV-DO was still regarded as an investment focus, but Verwaayen was adamant. "I was just talking with a very big CDMA customer, and I'm very excited about the prospects." It's just possible that customer was China Telecom Corp. Ltd. (NYSE: CHA), which is soon to get a CDMA-based 3G license. (See China's 3G Move to Trigger Spending.)

Those investments will be underpinned by a development strategy Verwaayen was also keen on when he was at BT Group plc (NYSE: BT; London: BTA): He wants his company to create technology building blocks and then re-use them time and time again. "Do things once, do them right, and then reuse" is the new mantra.

And those building blocks need to be "open" as well. "Our systems need to be open, our standards need to be open, and our minds need to be open. Our industry has been about proprietary, closed technology and mindsets. That needs to change."

WiMax decision
WiMax has given the CEO and his team a challenge. Fixed WiMax is still in favor -- "it's a wireless DSL, so it fits in with our broadband everywhere strategy" -- and will continue to receive investment.

Mobile WiMax, however, is an alternative to LTE, and isn't needed. "We see things differently to the way we saw them two years ago. The world has changed so we have decided to stop [investing in mobile WiMax]," said Verwaayen. "It's a tough decision, but the right decision."

As for the legacy technologies (such as ATM and ADSL) in AlcaLu's portfolio, Verwaayen was keen to stress they're not being dumped -- they just won't have investment dollars showered on them. "We are not walking away [from these technologies], we are reducing our spend on them. We will keep them running and make sure they're alive and ticking for years to come. Where we are reducing our R&D, that doesn't mean we're getting out of those areas."

Cutting jobs
As for the job cuts announced today, Alcatel-Lucent noted that, among its 70,000 or so staff, it currently has 15,000 managers, of whom 1,000 are being axed, and 10,000 contract staff, of whom 5,000 will be let go. No particular geography is being targeted with the cuts.

Verwaayen and his team didn't provide any updated financial guidance for the current fourth quarter or provide any detailed forecasts for 2009 and beyond.

— Ray Le Maistre, International News Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 3:25:12 PM
re: AlcaLu's New Vision: More Convergence
Isn't this what this army of bozos has been doing for the last, I don't know, gazillion years?
User Rank: Light Beer
12/5/2012 | 3:25:12 PM
re: AlcaLu's New Vision: More Convergence
The marketing boys must be working over time on this one

"zero touch, high capacity, low cost-of-ownership optical transport capabilities; service-aware, programmable IP technology; and products that enable "broadband everywhere," whether over fixed or wireless connections."

Does this mean that current optical offerings are high touch, low capacity, high cost of ownership? ...and what about those non-programmable IP technologies? Broadband everywhere...didn't the Telecom act of '97 attempt that one?

Fundamentally, it is about service offerings and cost savings....market speak went out with the 90s.

Oh yes, are all those lay-offs going to be domestic? Probably, right? New band, same song.
User Rank: Light Beer
12/5/2012 | 3:25:11 PM
re: AlcaLu's New Vision: More Convergence
seems like this is more of a statement of "stay the course". I think we all understand, providers and vendors alike, that we need to move to a converged network that keeps the reliability of our traditional telephony gear without the tremendous CapEx liability that our legacy network imposed.
User Rank: Light Beer
12/5/2012 | 3:25:11 PM
re: AlcaLu's New Vision: More Convergence
> ...70,000 or so staff, it currently has 15,000 managers...

Wow, just wow. This ratio is even higher than I ever expected it to be. Believe me, these 1000 axed managers will not hurt. It's even Verwaayen's best move until now. However, the remaining ones have already tried and failed with something in this area since gazillion years (as flam has mentioned) without any real form of success.

Old Telco
Old Telco,
User Rank: Light Beer
12/5/2012 | 3:25:10 PM
re: AlcaLu's New Vision: More Convergence
Remember, in ALU parlance, pretty much everyone above an administrative or entry level position is a 'manager'. AL execs, in particular, still have their admin staffs to cater to their needs. LU shed most of its admin staffs years ago.
User Rank: Light Beer
12/5/2012 | 3:25:09 PM
re: AlcaLu's New Vision: More Convergence
Right -- in AT&T and all companies that came after, at least, and I think this is true of many other old corporations, everyone who is non-union is a "manager"... even with no direct reports.
Old Telco
Old Telco,
User Rank: Light Beer
12/5/2012 | 3:25:06 PM
re: AlcaLu's New Vision: More Convergence
And more than a few ALU employees listed themselves as 'VP's, again with no direct reports. But the former ALU titles are only self-reported. Not allowed to publicize employees titles... Apparently ALU STILL has not 'leveled' the titles between LU and ALU staffs.

Of course, soon they won't have too. Former LU employees seem to be bearing the brunt of the layoffs. Not exactly what the US Congress had in mind when it approved the deal.
User Rank: Light Beer
12/5/2012 | 3:25:04 PM
re: AlcaLu's New Vision: More Convergence
It is much easier to layoff in the US than in France and Germany (a long drawn out process requiring government approval). If they should reverse their fortunes, they will likely grow faster in the US because of that same reason.
User Rank: Light Beer
12/5/2012 | 3:25:03 PM
re: AlcaLu's New Vision: More Convergence
Exactly...however, Alcatel built up the employee base in Europe over the years and has left the US susceptible to bearing the brunt of the cuts during the downturn.

A very large portion of the ALU revenue (and profit) comes from the US. But that tends to subsidize employment elsewhere in the company. I am sure Congress did not see that one either.
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