Alcatel Under Fire Down Under

A multibillion-dollar contract awarded to Alcatel (NYSE: ALA; Paris: CGEP:PA) by Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) has come under scrutiny after questions were raised about alleged favoritism and the vendor's previous performance for the Australian incumbent.

In November 2005, Alcatel was awarded a $2.55 billion contract as a lead contractor in Telstra's infrastructure upgrade. (See Telstra Unveils Switch to IP.)

Now, though, questions are being raised about that award and links between Telstra's CEO, Sol Trujillo, who joined the carrier in June 2005, and the vendor. (See Telstra Appoints New CEO.)

On Monday, an Australian government budget committee heard that Telstra staff had warned the carrier's senior executives about an alleged series of quality and pricing disputes Telstra had experienced in the past with Alcatel.

Despite those warnings, Alcatel won the deal. Now politicians and local media are questioning whether Trujillo, who used to sit on Alcatel's advisory board when he was CEO at mobile operator Orange SA (London/Paris: OGE), favored Alcatel and fast-tracked the contract award process. (See Trujillo Named CEO of Orange.)

It has also been reported in the newspaper The Australian that the vendors competing for the Telstra contract were forced to visit Denver -- Trujillo's former base -- to make their pitches.

Both parties are, naturally, playing it cool. According to a spokesman for Telstra, "The necessary procurement channels were followed within Telstra so there's not much to report. We are looking closely at our vendors and making sure we get the most out of them and cutting down the number of vendors we use." He adds that the carrier "ticks all the boxes" when it comes to corporate governance.

As for the Colorado adventures, the spokesman says that "seems a bit weird, but if you're chasing work worth billions of dollars you'd do just about anything to have a chance of winning it, wouldn't you?"

Alcatel responded to questions about its history with Telstra and the current engagement with an emailed response, citing a long association with the carriers stretching back to 1895 (really!). And the vendor also stressed a growing trend towards carriers working with a small number of vendors.

"Around the world, carriers are recognizing that the traditional method of tendering for every box and using a myriad of vendors within the network is too complex, too expensive and does not deliver the best value to customers or shareholders," the vendor stated.

But Alcatel didn't respond directly to suggestions that it had a patchy track record in previous engagements with Telstra.

— Ray Le Maistre, International News Editor, Light Reading

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