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Optical/IP

Merger Would Benefit Lucent in IPTV

From an IPTV point of view, a wedding of Lucent Technologies Inc. (NYSE: LU) and Alcatel (NYSE: ALA; Paris: CGEP:PA) would benefit Lucent far more than its French counterpart, analysts say. (See Lucent, Alcatel Rekindle the Flame.)

Alcatel and its partner Microsoft Corp. (Nasdaq: MSFT) dominate the market for large-scale telco TV rollouts. (See Alcatel & Microsoft Going Steady.) Lucent, meanwhile, has been far less visible and would like the chance to play in the profitable and growing space. (See Lucent Sees IPTV Opening.) “We think Lucent is more desperate to get a deal done than Alcatel, given its lack of growth prospects, and a merger with Alcatel would give Lucent an opportunity to participate in the FTTx/IPTV build-out projects currently underway at service providers across the globe,” says Citigroup analyst Alex Henderson in a note. Alcatel has been promoting telco TV for many years, and is now reaping revenues from access equipment sales to new deployments like AT&T Inc. (NYSE: T)’s Project Lightspeed.

Alcatel currently controls more than one-third market share in broadband access, writes Prudential Equity Group LLC analyst Inder Singh in a brief released Friday.

Alcatel reported $15.8 billion in revenues during 2005 while Lucent reported $9.2 billion.

UBS AG estimates that access equipment sales contribute a third of Alcatel’s fixed-line revenues, which in turn represent about 40 percent of the company’s total revenue. (See Alcatel Struts TV-Over-DSL.)

By contrast, access equipment revenues contribute only 11 percent of Lucent’s fixed-line revenues, which account for 26 percent of total revenues, UBS analysts say. And so far, Lucent has made some deals in the IPTV space, but they've been limited in scale. (See Lucent Sees IPTV Opening.)

Alcatel’s technology portfolio contains a wealth of network access equipment now being used by carriers to build out new fiber-powered IPTV networks. Lucent’s portfolio, analysts say, contains very little access technology that might enhance Alcatel’s portfolio in this area.

If a merger takes place, Alcatel would continue to control the access business of the combined company. “The IP division within Alcatel is really the one that has put together the company’s triple play services delivery architecture, and they are going to continue to lead that,” says Heavy Reading analyst Rick Thompson.

The wildcard in the deal for Alcatel may be Lucent’s progress in IMS. Lucent has won broad IMS contracts with the likes of AT&T and Cingular Wireless , but the revenue implications of those wins remains unclear to many. Still, as time goes on, IMS make become more and more entwined with carriers’ IPTV offerings. (See Cingular Picks Lucent for IMS, SBC Picks Lucent's IMS , and BellSouth Picks Lucent for IMS.)

“The fact that Lucent has won some IMS deals, Alcatel will certainly leverage that going forward,” Thompson says. “There will be some kind of integration between IPTV and IMS, and that could be something that could strengthen Alcatel’s IPTV story beyond what it already is.”

Analysts believe the two companies’ strengths are complimentary and would bring about some changes in a combined company. “We would expect Lucent’s access and IPTV business to be dramatically scaled back given the strong position Alcatel has in this business globally,” UBS analysts wrote in a research note released Friday. “Alcatel’s IMS business is likely scaled back in favor of the stronger Lucent offering.”

A Lucent/Alcatel merger could also be seen as a logical reflection of the regrouping of AT&T, Cingular, and BellSouth Corp. (NYSE: BLS). Before that event, Lucent had won IMS contracts at all three companies. Alcatel had been a key vendor in the networks of AT&T and BellSouth. It’s not farfetched to think that some synergies could grow from a merger of the lead access provider and the lead IMS vendor at the new AT&T.

Some analysts believe Alcatel's dominance in the access network might open some big doors for Lucent’s profitable managed services business. Lucent Worldwide Services, which offers such things as hosting, managed services, and network installation and integration, contributed roughly a quarter of the vendor’s revenues last year.

In general, analysts note that Lucent is strong in IMS, CDMA mobile infrastructure, and services; while Alcatel is strong in access, edge routing, and optical.

Geographically, Lucent has strong relationships with large North American telcos -- notably Verizon Communications Inc. (NYSE: VZ) -- that might eventually benefit Alcatel. Alcatel has a strong presence in Europe and in emerging markets.

Alcatel is expected to discuss the Lucent merger talks at a board meeting this Thursday.

— Mark Sullivan, Reporter, Light Reading

trunk_port 12/5/2012 | 3:59:29 AM
re: Merger Would Benefit Lucent in IPTV I cant still get it..... Why did Lucent acquire Riverstone if it so badly needed to merge with Alcatel....?
jasanz 12/5/2012 | 3:59:29 AM
re: Merger Would Benefit Lucent in IPTV As a backup plan.

...and I dont think that LU needs "desperately" a merge with ALA... I see this as a win-win for both... I think that it is true that the complement each other... at least more than other vendors...
chip_mate 12/5/2012 | 3:59:26 AM
re: Merger Would Benefit Lucent in IPTV When you say it's a win-win for both, you mean the Shareholders, right?
Certainly not a win-win for Lucent's employees, as they will fare as well as Marconi's did.
Adios Lucy. Good to know ya.
Mark Sullivan 12/5/2012 | 3:59:25 AM
re: Merger Would Benefit Lucent in IPTV Riverstone's product line isn't nearly as broad as Alcatel's when it comes to the access network. Alcatel may have a look at the Riverstone gear, and may use some of it. Or not. But it does seem strange that Lucent would have pursued that acquisition if it had a clear goal of merging with Alcatel. Is it possible they grabbed Riverstone as a hedge against the failure of an Alcatel merger?
Mark Sullivan 12/5/2012 | 3:59:25 AM
re: Merger Would Benefit Lucent in IPTV Wait a second. To be clear, the point that analysts were making in the article is that Lucent would benefit more from the merger IN THE AREA OF IPTV. Looking at the merger from top to bottom and in all tech areas is a different story.
materialgirl 12/5/2012 | 3:59:24 AM
re: Merger Would Benefit Lucent in IPTV LU's RSTN timing is bizarre. They had to be talking with ALA while they were talking with RSTN. If not, then they are being so reactive, the whole place must be about to blow up.

How much did ERICY management know about this? Their jab to jack up the price of RSTN perhaps was a test of LU's true intent. Either way, the timing makes LU look dumb.
Honestly 12/5/2012 | 3:59:24 AM
re: Merger Would Benefit Lucent in IPTV Mark,
excellent posts. There are several product lines that overlap, not to mention issues with Lucent properties like Bell Labs and its relationship with the US govenment. Add politics and the business that ALA does in the middle east and it adds completity to the potential deal because of National security concern as a current D.C. issue. I hear the Alcatel board meets today and we will see how solid this may be. As for IPTV, Lucent may extend AlA's integration into these deployments, but it seems rather clear that the ALA, Microsorft machine has most of the service providers locked up with IPTV software edition.
pxk7783 12/5/2012 | 3:59:22 AM
re: Merger Would Benefit Lucent in IPTV
To kill competition ?
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