Lucent Cools Heels on Price Hike

Lucent Technologies Inc. (NYSE: LU) appears to have backed down, for the moment at least, on raising prices on a significant chunk of its services.

Sources say Lucent warned carrier customers about a month ago that it planned to nearly double the cost of maintenance services on its high-end Class 5 voice circuit switches. But an outcry from Verizon Communications Inc. (NYSE: VZ) and other significant customers seems to have forced the vendor to reconsider.

"They talked about it, but they seem to want to protect their customer base," says Susan Eustis, president of WinterGreen Research Inc., a telecom consultancy. "Customers are shaky already. Lucent doesn't want to do anything to lose the relationships."

Nearly every carrier in the U.S. uses these high-end Class 5 switches in their networks, either from Lucent or a competitor such as Nortel Networks Corp. (NYSE/Toronto: NT).

Carriers invest heavily every year to keep this gear upgraded with the latest functionality (multimedia, for instance). It's not unusual, for example, to have a team of people working on voice switch maintenance. (Lucent says maintenance teams vary according to the number of lines in a switch, which ranges anywhere from 50 to 50,000.)

At press time, Lucent wouldn't comment on the alleged maintenance pricing situation, and Verizon hadn't returned calls. But sources say the news that Lucent could have threatened its customer relationships by raising rates on its Class 5 switch services is interesting for several reasons.

First off, it indicates that carriers may see the end in sight for their investment in circuit-switched voice equipment. While the jury's still out on the progress of alternatives, such as packetized voice over IP (see Where Is VOIP?), many industry pundits insist it's only a matter of time before carriers start pulling the plug on circuit-switched gear.

"[Class 5 switching] is an area that's dying," says Frank Dzubeck, president of Communications Network Architects (no Web site). "And replacements for these switches won't be more Class 5 voice switches. They're living at the edge of legacy." RBOCs and other incumbents are looking at voice over IP seriously, he says, and planning migration strategies. Lucent has its own products to offer in this regard (see Lucent Intros Universal Gateway).

So why would Lucent propose an increase in the first place? Here, sources are divided. "It's a good sign," says Dzubeck. It shows Lucent was confident of its ability to get new business -- for its packet-based products -- without using maintenance as a selling point, he suggests. And that, he says, is a sign of recovery.

But Eustis isn't sure. "From a marketing perspective, it's not a good move," she says. Rather than expressing confidence on Lucent's part, she says, the proposal to raise prices told customers Lucent was so desperate to keep them invested in what it does best -- circuit switching -- that it was willing to risk their wrath to prevent them from moving easily to alternative gear.

Without Lucent's confirmation, or input from specific carriers involved, it's tough to speculate on Lucent's motives for the rumored price increase proposal. But one thing is clear: Any attempts to squeeze life out of voice gear at this point are bound to meet resistance that wasn't there just a few months back. And as that resistance becomes an industry talking point, it's certain to clarify the need to move into voice over IP -- or the reason not to.

— Mary Jander, Senior Editor, Light Reading
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Kevin Mitchell 12/4/2012 | 10:13:52 PM
re: Lucent Cools Heels on Price Hike They may not "die", but will certainly evolve and what we call a Class 5 switch 15 years from now won't be the same piece of equipment it is today.

Also, note the big push from the legacy voice switch vendors (except Lucent) putting dollars and marketing brawn behind packet telephony.

This is a marathon...but TDM voice equipment WILL be replaced.
seeallwan 12/4/2012 | 10:14:11 PM
re: Lucent Cools Heels on Price Hike Sorry for the typo...1-Bil a year.
seeallwan 12/4/2012 | 10:14:12 PM
re: Lucent Cools Heels on Price Hike BobbyMax,

ARE YOU KIDDING ME!!!...about all the startups that ruined Lucent?

I've give credit where credit is due for the stability of the 5ESS product line, but to say that the startups were the cause of ruining Lucent because they lacked expertise or education is so much on the BS side, it's a not even debatable.

I can't speak for all the start-ups Lucent bought, but can tell you, that the Cascade/Ascend division was contributing 1-Billion a qtr to the bottom line before the brilliant managment decided to cut most of the Core Switching product lines in favor of the other vaporware boxes they brought in the Westford facility.
If the products are/were so inadequate, then why are there approx. 50,000 FR/ATM switches out there from Westford, MA?

I can attest that more than 95% of all Westford engineers had more than a undergrad degree and years of sucessful experience. Think about it, if Lucent had all the expertise, then why did they have to buy all these start-ups? Gee, couldn't the all mighty Lucent/Bell Labs come up with something for the market? I think we all know the answer here.

Lucent drove out tens of thousands just as talented than what they had coming out of the old school of AT&T University.

Other than that, where Lucent did go wrong? They should not have tried getting involved in a market segment such as Data, because they always and ever will be, just a phone company period! They've got great R&D in Bell Labs, but have no clue how to unlock the potential in it with there arrogant ways.

Sorry BobbyMax, you struck a cord in me. No hard feelings. I hope Lucent does recover, but Lucent managment has to concede where there faults are, and that's something they'll never do.

consultant13 12/4/2012 | 10:14:17 PM
re: Lucent Cools Heels on Price Hike My congratulations to WolfLarsen
As someone who has seens both sides of these M&A equations - it's good to see a balanced view instead of polarizing rhetoric.

Sometimes these pro and con conversations remind me of the story of the blind men trying to describe an elephant. Each could only describe that portion they could lay their hands on!

Without knowing the whole picture, most guesses are just that...guesses.

The real issue for discussion is maximizing the value to Lucent and to its' Customers of the existing equipment. That's a fine balance to achieve in the best of times. The rest of comments come off as sour grapes.
25yrsofTelecom 12/4/2012 | 10:14:17 PM
re: Lucent Cools Heels on Price Hike Lucent committed a lot of mistakes in buying Octel Communications, Ascend Communications, and Springtide Networks. It presented enormous difficulties as the products from these companies were no good.

What dream world are you living in? Each of these were well established companies with large customer base. I know that in Octel's case they were the market leaders in voice mail and basically began the decline when the OCTEL next generation product was shelved for the Lucent Anypath look at the world. Go to any and I mean any of the RBOCs and you'll find that Octel product and service started their downhill climb afte rthe aquisition and until that time they were the best.
fiberglut 12/4/2012 | 10:14:27 PM
re: Lucent Cools Heels on Price Hike If Lucent's top Management sucks why did we pay them large retention bonuses to stay? (ugh)

If we get into a discussion of the problems with Lucent management this message thread may never end.
WolfLarsen 12/4/2012 | 10:14:28 PM
re: Lucent Cools Heels on Price Hike Depending on who is talking, either:

The startups aquired by Lucent had brilliant people and products who's work was destroyed by Lucent 9-5'ers and bad managment.


The startups where shaky, hollow shells with employees that stoped working the day they where aquired and just coasted until their options vested.

Doesn't anyone realize this is a polarized debate?

Novel Idea: The people in the startups and in Lucent were, on average, of the same quality. Complex market changes, culture clashes, and judgement errors on both sides (aquisitions are deals remember) where the cause of failures.

There is no blame.
let-there-be-light 12/4/2012 | 10:14:28 PM
re: Lucent Cools Heels on Price Hike Wolf said:

....Novel Idea: The people in the startups and in Lucent were, on average, of the same quality. Complex market changes, culture clashes, and judgement errors on both sides (aquisitions are deals remember) where the cause of failures.

There is no blame.....

Agree, but perhaps with one exception: management.
In spite of all the polarized debates we have had, everyone (even Bobby Max!) agrees:

been_there 12/4/2012 | 10:14:29 PM
re: Lucent Cools Heels on Price Hike
I'm not sure what dream world you are living in.

Did Lucent make mistakes with some of their acquisitions? Of course, they did. But their biggest mistake was their inability to make a decision about anything. In the rare cases where a decision was made, it was usually misguided and politically motivated. This frustrated many employees from the acquired company and ultimately drove them away.

I find your characterization of the caliber of the employees at the acquired companies laughable. As someone who lived through the Cascade->Lucent transformation, let me tell you what I saw.

At Cascade and Ascend, I saw many dedicated employees who were willing to do whatever it took to make the company successful. These were the people who were driven away.

After Lucent came in the whole culture of the company changed. As replacements were hired, it wasn't long before the typical employee became a "paycheck-collector" who was unwilling to work outside the bounds of 9-to-5. It doesn't take much education or expertise to fit that job description.
fiberglut 12/4/2012 | 10:14:29 PM
re: Lucent Cools Heels on Price Hike Maybe it was the case that the "Dedicated" Ascend folks left as soon as they were eligible to cash out their options

I have worked with many Lucent employees who have put in long hours and weekend duty to meet deadlines. The "Pay-check Collectors" were the exception and not the rule

Lucent, as well as Nortel, Cisco, and otherlarge companies have lost talented employees for a number of reasons. The downturn in the Telecomm industry has not helped. In today's market revenue drives headcount, and as such sometimes good people are forced out.

In many cases I may not agree with management decisions, but to classify Lucent employees as 9-5 workers is unfair.
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