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Alcatel, Lucent Face Security Grilling

Representatives from Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) have been called to a hearing organized by the House Armed Services Committee to answer questions about the national security implications of their proposed merger. (See Alcatel, Lucent Seal Deal.)

The hearing, organized by the Committee's chairman, Republican Congressman Duncan Hunter, and scheduled for 2 p.m. on Tuesday, November 14, in Washington, D.C., comes as the vendors make their final plans to become one giant telecom equipment supplier. (See Alcatel Preps New Tech Roadmap.)

The Committee's members are expected to hear testimony from representatives from the vendors and officials from the Committee on Foreign Investment in the United States (CFIUS), which has been reviewing the proposed merger. However, a list of "witnesses" due to speak at the hearing has yet to be announced. (See Alcatel/Lucent Wait on W OK.)

At the heart of any security concerns is the role of Lucent's Bell Labs , which does a lot of U.S. military-related work. Lucent has addressed this situation by planning for the Labs to become a separate subsidiary in a post-merger world, though questions have already been raised as to whether that will be enough to satisfy the concerns of some U.S. lawmakers. (See Analyst: Alcatel Should Rethink Things.) The vendors should prepare themselves for a challenging session next Tuesday. Congressman Hunter, who represents California's 52nd Congressional District, has already made his feelings clear about the proposed merger. Only weeks after the vendors announced their intentions to join forces, Hunter wrote a letter to President Bush saying that he had "several grave concerns about the potential merger of French-owned Alcatel and American-owned Lucent Technologies.”

He added: "These concerns arise in large part because Lucent Technologies and Bell Labs, a critical component of the parent company Lucent Technologies, conduct a significant amount of highly classified work for the United States government, including the Department of Defense. I am skeptical whether the current CFIUS process could provide adequate, verifiable assurances that such sensitive work will be protected.”

The vendors are keeping their thoughts about the hearing to themselves, at present. "We have heard from the Committee and have their request under review," says Lucent spokeswoman Mary Lou Ambrus, while Alcatel issued an identical statement.

Investors clearly aren't worried that the hearing might scupper or delay the deal. Alcatel's share price is down just €0.08, less than 1 percent, to €10.33 in Paris today, while Lucent's stock is up 1 penny to $2.53 in pre-market trading this morning.

— Ray Le Maistre, International News Editor, Light Reading

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njguy 12/5/2012 | 3:35:05 AM
re: Alcatel, Lucent Face Security Grilling 1) Lucent does not own the switches. The phone companies own the switches. Lucent makes and sells them.

2) There's a lot more to Bell Labs than government work. Lucent will not be making Bell Labs a subsidiary. They'll be making a portion of Bell Labs a subsidiary.
alchemy 12/5/2012 | 3:35:05 AM
re: Alcatel, Lucent Face Security Grilling brookseven tells us:
French CIA: Put a bug in the next patch so we can listen to all US phone calls that pass 5ESS switches anytime we want.

Alcatel: Okay...

Get the idea? That is the reason it is a security risk.


Combine that with all the Quebecois who worked on the DMS-100.....

Shouldn't we be more worried about Microsoft? *grin*
corwin0 12/5/2012 | 3:35:04 AM
re: Alcatel, Lucent Face Security Grilling Brookseven,

The last time I checked, the switches were owned by the operators, not Lucent or Alcatel. They were made by either L or A. Does that mean that it's impossible for "evil code" to be loaded into a switch during an upgrade or maintenance - no, however, even if it were, it would have to have the infrastructure to do something useful. It's the carrier's network, and the carrier's kit.

Also, the staff working on those switches will probably be mostly US (local support organization, etc.) You can't tell me that if an "evil, cheese eating, surender monkey" put "evil code" into a switch, some US worker wouldn't raise the red flag.

Frankly, I am much more nervous about my own government getting the carriers to look the other way when it comes to constitutional protections, than a surrender monkey company taking a risk that would screw up a huge market that it has just spent 13B to enter.

Corwin
jepovic 12/5/2012 | 3:35:03 AM
re: Alcatel, Lucent Face Security Grilling I agree that this probably has little to do with security, and I'm allergic to protectionism. However, in this case I think a lot of people are very naive.

First of all, what says that Huawei couldn't buy Alcatel in 5 years?

And of course the switches are owned by the operators. But the vendors are in control of the software, and could realistically put any feature in it. Operators are cutting down testing and focus on getting the right functionality from the boxes - who has time to go through the source code even if it was an option?

So, in a 5-year perspective, you could have chinese engineers controlling the software for the majority of your class 5-switches. Yum.

Put it this way: Yes, it's probably an economical loss to keep Lucent American. Perhaps a few billion dollars.

How many wonderfully useful defense system projects do you get for a few billion dollars? Compared to your astronomical military spendings, I would say the cost for keeping LU under control is puny.
mu-law 12/5/2012 | 3:35:02 AM
re: Alcatel, Lucent Face Security Grilling I guess in a busy switch, it would be possible to have a silent call out wiretap that crops up every once in a while... however, the mechanism by which this would be triggered is not clear. Perhaps the vendor in question would provide service on the affected system, etc... this requires all but an overt conspiracy, and its a pretty low yield undertaking. I remain unconvinced.

In the present day and age, and given the large proportion of lines served in the US by equipment from a single vendor I would be far more concerned with the likes of a "logic bomb" causing service disruption. In this case, the trigger could be something as simple as ANI of terminations into each affected exchange.

It seems a bit far fetched to put the French at the root of all of this. However, there are manifold groups and individuals throughout the world that would like to see the US come to harm, and some number of them can get computer or internet access.

For that matter, even before the French were in the picture, what have makers of critical infrastructure elements done to assure the integrity of their object code? audit source?

If we're looking for an issue worthy of a few billion dollars of attention, maybe regulating or attaching liability to information security is worthwhile.
LightInSky 12/5/2012 | 3:35:02 AM
re: Alcatel, Lucent Face Security Grilling To chip-mate (#8)

Isn't Eslambolchi muslim ?
There are some muslims in LU as well ...
Not that I disagree with your criterion ...
jepovic 12/5/2012 | 3:35:00 AM
re: Alcatel, Lucent Face Security Grilling Most scenarios regarding national security are far-fetched, and the US spends far more money on outright ridiculous military projects.

Alcatel are french at the moment, but is that true in five years? If Huawei would like to buy Alcatel in a couple of years, the US gov can do nothing about it.

There's another angle here as well: Suppose NSA and/or FBI have backdoors into LU. Not unlikely, as some have pointed out. With the Alcatel takeover, the risk increases that those backdoors will be closed or (worse?) will leak out in the media.
zoinks! 12/5/2012 | 3:35:00 AM
re: Alcatel, Lucent Face Security Grilling No, but they do have networking R&D and sustaining organizations in Morocco and Algeria. One could posit a timebomb being slid into some maintenance release .... its far-fetched but I don't think its out of the question.

Zoinks!
paolo.franzoi 12/5/2012 | 3:35:00 AM
re: Alcatel, Lucent Face Security Grilling
The point of CALEA is silent wiretapping to maintain the safety of End Office personell. They are unaware of wiretaps.

And if you think the US government doesn't have backdoors into existing equipment (authorized or not), you are greatly kidding yourselves.

People were asking why there might be security concerns. That is where it is. How do you think NSA monitors phone calls for key words? By magic?

seven
mu-law 12/5/2012 | 3:34:59 AM
re: Alcatel, Lucent Face Security Grilling but they do have networking R&D and sustaining organizations in Morocco and Algeria.

From what I've seen, many "legacy" products have sustaining that is offshore, and to the lowest bidder. There's certainly an incentive for the vendor to do this, but the decision to approach sustaining this way is also one to forego some amount of oversight and quality in exchange for productivity or cost effectiveness. Outsourcers build their businesses accordingly...
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