Alcatel SA (NYSE: ALA; Paris: CGEP:PA) is emerging as le cheval noir in the GSM/UMTS network infrastructure market with a profitable business and unique approach to peddling its 3G wares (see Siemens One to Watch in UMTS).
The profit margins come from having low manufacturing and operating costs, according to the latest edition of Unstrung's monthly subscription-based research report, the Wireless Oracle. This month's report, "Survival of the Slimmest: Competitive Positioning in GSM and UMTS Infrastructure Markets," is available now. The French vendor has had particular success in France -- quelle surprise! -- with Orange France (Paris: OGE) and, just announced, with SFR (see SFR Picks Alcatel RSP).
Most of its business still comes from minor territories, but such contracts add up to a GSM/GPRS/UMTS network infrastructure business worth about $3 billion per year at present, with margins in excess of 10 percent, according to the Wireless Oracle. Just in the past two months, Alcatel has announced four contracts for GSM/GPRS business -- in addition to the new SFR deal (see Alcatel Expands Angolan Net, Alcatel Wins In Pacific, Tunisia Turns to Alcatel, and Tikiphone Picks Alcatel).
While it chips away at the GSM business, the Gallic giant is investing in what it calls "3G Reality Centres," the latest of which has just been "inaugurated" in Stuttgart, Germany (see Alcatel Gets Real With 3G), though it has been "open" since June. The centers are intended to attract companies "for the development, testing, validation, and promotion of advanced mobile data applications and services."
In addition to Germany, there are "centres" in Paris, Kuala Lumpur (Malaysia), Lisbon, Malmö (Sweden), Rijswijk (the Netherlands), Shanghai, and Taipei (Taiwan). A facility in Italy is due to open soon, and Alcatel plans to open further centers in Australia, Japan, and Korea in the first quarter of 2003.
While this sounds like it might be more mouth than trousers, as we so crudely say in the U.K., IDC wireless analyst Paolo Pescatore has experienced Alcatel's 3G reality in the Netherlands, and was "very impressed. [Alcatel] wants to demonstrate its capabilities to partners, customers, content developers, handset manufacturers -- anyone, really -- to show what applications can be run over its network kit to multiple devices. The technology is there, as I am sure it is with Alcatel's competitors. But Alcatel is really up front with what it has and what it can do, and is willing to show anyone what it is capable of, and wants to work with partners on 3G development."
Pescatore was particularly impressed with the demonstrations, including a live video call between 3G test handsets in the Netherlands center and the facility in Malaysia. "It was real-time, device-to-device video. And in a vehicle they showed Web browsing on a PC and streaming movie clips." (See Alcatel UMTS Bridges Eurasia).
The challenge for Alcatel is how it justifies these centers. "How can it judge the success of this strategy? Is it by the number of visitors, the number of partners that use the test facilities, or is it by new deals that come from a 3G Reality experience? How do they measure it? They can't be cheap to run."
But Pescatore believes Alcatel has nothing to lose by adopting this approach. "It hasn't made a lot of noise about its wireless capabilities, probably because its handsets are not very appealing, but it has a good story to tell from the networking side of things. Alcatel is really an unknown success in the mobile market," he believes.
Wireless Oracle research analyst Gabriel Brown agrees on this. His verdict on Alcatel's GSM business is that "Alcatel has significantly outperformed the market in 2002, with particular success outside Western Europe. The company says revenues have been driven by its competitive pricing, while margins have benefited from a low cost base." And his overall verdict for GSM/UMTS is: "Pleasantly surprised by the relative strength of Alcatel’s wireless equipment business. The focus on low manufacturing and operating costs is setting the trend for the competition. The UMTS side still looks a little a shaky, however." Hence the 3G centers, we guess.
Unfortunately we didn't get to speak to the relevant Alcatel people about its aspirations for, and the cost of, its 3G Reality Centres before this article was published, but we expect to hear from them shortly and follow up with the answers.
— Ray Le Maistre, European Editor, Unstrung
The full 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.
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