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Alcatel Centers on Cost

A long-term strategy based on cost control is the key to a profitable wireless infrastructure business, according to French vendor Alcatel as it responded to questions about its 3G Reality Centre strategy (see Alcatel Gets Real in Europe). Alcatel has plans for more centers, though not yet in North America, and claims that having a steady hand on the cost tiller has led to 20 frame agreements for UMTS infrastructure, though the company has little to show in terms of 3G contracts as yet. Jérôme Albert, VP of marketing and communications for the vendor's mobile networks division, told us that its emergence as a profitable and growing provider of GSM, GPRS, and UMTS infrastructure is the result of "four to five years of humble, pragmatic, and repetitive work" to deliver the most cost-effective systems while focusing on sales in emerging markets. The latest example is a deal with a new entrant in the Belize wireless market (see Alcatel Wins In Belize). The one thing you need when analyzing Alcatel's wireless contracts is an atlas -- other recent contract awards have been in Angola, Tunisia, and the Christmas Islands. Albert says the company is banking on UMTS being a slow burner, and that operators will find the French company's proposition an attractive one -- in time. "We can play a role in commercial and interoperability testing with our 3G Reality Centres, and that's a business in itself that can be developed. In the short term we are opening these not-for-profit centers to increase the activities within our wireless networks solutions business." Opening up the facilities will support the development of new applications and content, and lead to partnerships for Alcatel. Albert also believes that, through its work with applications and content developers in these centers, Alcatel can help carriers stimulate data service demand in their existing networks through these centers, which in turn will lead to further investment in those networks, even during "this period of capital expenditure containment." This is a turnaround in the industry, says Albert. "Most of the mobile business, even up to a year ago, was driven by infrastructure buildout -- operators were building new and additional networks. Now, it is usage of the networks that drives investment decisions. This means those investments are more fragmented, and there is much more focus on middleware and platforms." So what are the plans for these centers? Our previous article listed the locations of the existing and soon-to-be-opened facilities, which are, and will be, interconnected. "This is very important, because each territory is developing something different, but we need to share the experiences. There are many common experiences, but the power of the concept is to have a local presence but be able to cross-fertilize," says Albert somewhat excitedly. Being local does not yet stretch to the Americas, though. "We have plans for the U.S., but that is in our second stage. Asia is a very mature market for mobile data, which is why we started there, and Europe is key for UMTS and GPRS developments. The U.S. is still very fragmented, and mobile data is starting later. We are going to maximize the benefit of these centers in the more mature markets first." The next stage, it seems, is to have smaller "remote" 3G centers, where the radio network element of a full Reality Centre will be installed, and then the remote facility will be linked via an ATM connection to a fully kitted-out center. The U.K. looks set to host one of these remote facilities, which will be cheaper to set up and run. "We may be profitable, but that's not a reason to over-invest," states Albert. But while he claims the centers have been "decisive" in helping Alcatel close some recent business deals, the company's 3G story comprises more Reality Centres than UMTS customers so far. It has signed deals with Orange SA (London/Paris: OGE) in France and Sweden, SFR, also in France, and Portugal Telecom TMN. Albert also claims frame agreements with 20 operators around the world, including the likes of Bouygues Telecom (yes, in France…) and Russia's JSC Vimpel-Communications (VimpelCom) (NYSE: VIP). "We are radically committed to UMTS," says Albert. "Our partnership with Fujitsu Ltd. (KLS: FUJI.KL) is a great technical success and has given us cost leadership in the market, and much credibility." What will need to happen next is for Alcatel to turn its strategy of "cost optimization" and a "persistent focus on emerging markets" -- a strategy that has seen its GSM business grow successfully from a small base to capture nearly 11 percent of the market -- into a series of major 3G deals with Tier 1 carriers in mature markets. Other than France, that is. Given the stranglehold that the top three already have over the world's leading UMTS license-holders -- of the $19.4 billion of deals awarded, LM Ericsson (Nasdaq: ERICY) has 40 percent, Nokia Corp. (NYSE: NOK) 27 percent, Nortel Networks Corp. (NYSE/Toronto: NT) 15 percent, and Alcatel 3 percent, according to the latest Wireless Oracle -- those 3G Reality Centres might need to include a magical element that the carriers have not yet seen. — Ray Le Maistre, European Editor, Unstrung The latest Wireless Oracle report, "Survival of the Slimmest: Competitive Positioning in GSM and UMTS Infrastructure Markets," is available for $400. An annual subscription to the Wireless Oracle is ordinarily $1,250 but is currently available at the special introductory price of $899. For more information, including subscription information and research examples, visit the Wireless Oracle at www.wireless-oracle.com. Editor's Note: Light Reading is not affiliated with Oracle Corporation.

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