Alcatel, Lucent Face 3G Decision
Alcatel already claims Orange SA (London/Paris: OGE) as a W-CDMA customer, and Lucent has signed up Cingular Wireless . And each has deployed significant chunks of gear for the job.
So, in crafting a 3G strategy, observers say, the combined Alcatel/Lucent is going to have to decide to work these two product lines in parallel, or flip a figurative coin to decide which stays.
"This is going to be a problem for them. The main way that they are going to be able to derive synergies in W-CDMA is by abandoning one of their two product lines. And they can't do that without creating significant disruption to either Orange or Cingular," says Heavy Reading analyst Patrick Donegan.
Spokespeople on both sides declined to comment on the issue, saying the companies aren't giving information on post-merger product strategy. "It's way too early to speculate on anything that specific," a Lucent spokeswoman says, adding that when product decisions get made, "clearly the impact on customers is going to be one of the topmost issues."
Sure, it's one factor among dozens that will challenge the companies as they try to finalize their $36 billion tag-teaming; the companies have a similar situation brewing in IMS, for instance. (See Alcatel, Lucent Seal Deal and Can Alcatel & Lucent Avoid an IMS Mess?.) But it would seem crucial for them to develop a wireless strategy to stand against Nokia Corp. (NYSE: NOK) and, in particular, market leader Ericsson AB (Nasdaq: ERIC).
"Neither vendor has gained much W-CDMA market share. Lucent was never strong enough in Europe to compete with the likes of Ericsson and Nokia. Alcatel has struggled to make much headway among tier one W-CDMA carriers other than Orange," Donegan says.
None of this means Alcatel/Lucent is doomed in wireless, though. The company is going to be big, after all.
"Lucent dominates the CDMA market with roughly 50% worldwide market share, concentrated with the large North American CDMA operators –- Sprint and Verizon," Prudential Equity Group LLC analyst Inder Singh writes in a recent report. On the flip side, Alcatel has built up a GSM franchise, primarily in Europe, the Middle East, and Africa. Together, the two halves could form a good franchise.
Donegan believes its heft will be helpful in emerging markets like China, India, and Russia. (See Alcatel/Lucent: The Domino Factor.)
But Alcatel/Lucent isn't the ideal combination for wireless dominance. A merger of Nortel Networks Ltd. and Siemens AG (NYSE: SI; Frankfurt: SIE), should such a thing somehow come about, would be a more likely challenger to Ericsson in wireless, Singh notes.
— Craig Matsumoto, Senior Editor, Light Reading