Alcatel: Seasoned Survivor

Year 2001 was not a cherished one for the telecommunications industry, which

was unceremoniously jolted up from its sweet dot-com dreams. Capacities after

capacities of fiber, which had been put into the ground and under the sea in

anticipation of an unprecedented bandwidth demand explosion, became nothing more

than piled-up inventory. This made service provider companies to close the lid

on investments as banks became simply wary of new telcos. Equipment suppliers

naturally reeled under the phenomenon, with almost everybody going into the red.

In a year when Bell Labs and Lucent came dangerously close to getting sold

off, it was clear that only the tough would survive. Alcatel knew this well.

Standing Out



The Paris-based company too announced losses for the year 2001. But then

things didn’t get that bad for Alcatel. Sales revenues in 2002 were 25.35

billion euros as compared to 26.78 billion euros in 2001, largely because sales

of spin-off Nexans were de-consolidated in year 2001. Not only that, it also

consolidated its market positions. Alcatel captured the world’s number one

position in optical transport market. According to the market research firm RHK,

Alcatel had the biggest market share with 17 percent of the total optical

transport market. This it managed in a year when new submarine network projects

were not coming as thick and fast as in the previous year. In the submarine

optical systems, Alcatel further increased its leadership marketshare from 37

percent to 41 percent. Consolidation also came in the telecommunications access

solutions category. Alcatel’s domination in the DSL equipment market remain

unchallenged, with a global leading marketshare of 41 percent, according to RHK.

In the Skies Alcatel Space–Prime European space systems contractor Achievement: Revenue of 1.4 b Euro in 2001 The Current Misssions: Galileo Eutelsat W5 SES Americom Agrani India On Ground Alcatel–top optical player, turning copper into gold, leads the telecom access game by a fair margin Achievements: No. one player in optical transport with 17 percent marketshare worldwide, according to RHK World leader in DSL with 41 percent market share, according to RHK The Current Projects: Bell Canada North America–DSL France Telecom Europe–DSL Telus Canada–DSL CLP Power Hong Kong–DWDM BSNL India–switching for fixed network Vodacom Congo–GSM network ICE Costa Rica–GSM/GPRS network China Mobile–GSM network China Telecom–ATM and VoIP Under the Sea Achievement: 41 percent marketshare worldwide, as per RHK Current Projects: Apollo–Atlantic Ocean i2i–Indian Ocean SEA-ME-WE 3 upgradation to 10 Gbps DWDM

Alcatel’s performance has been the result of relentless pursuit of

innovation in optical technologies and taking a practical and balanced view of

the world markets. Unlike many of its global competitors, Alcatel has not put

majority of its eggs in one basket–the US market. Also, it has a more complete

portfolio than many of its competitors. Alcatel’s comprehensive strength is

unmatched, with strong offerings in the skies, on the land, and under the sea.

On the research and innovation side, Alcatel has been spending 2.8 billion euros

(approximately 11 percent of its annual sales revenues) on its R&D labs and

scientists. In huge labs like the one in Marcoussis, France, thousands of

scientists try out their ideas. The ongoing research is in areas of optics,

networking, application management and control, and mobile networks.

The Challenge



Although Alcatel has a more varied offering than most of the competition, it

is also true that its weak knee is the US market, where it does not seem to have

a strong-enough presence. That perhaps is the reason why it reportedly tried to

acquire (or was it going to be a merger?) Lucent Technologies, when the ‘Bell

Labs company’ was deep in the red. The US market may be down for the moment,

but it is too big a market to ignore.

Then, there are other things to worry about. One is the mobile wireless

market. Alcatel is seen as a late entrant in the fast growing GSM market.

According to a recent Yankee Group report, for the emerging 3G market, Ericsson

emerges as the worldwide leader with 30 percent marketshare, Nokia comes second

with 13 percent market share, and the others–Siemens, Motorola, Lucent, and

Nortel–fight it out for the third place. In the mobile phone market too,

Alcatel does not figure in the top bracket. According to a study by Gartner, the

market for phones in 2001 was dominated by Nokia with 35.6 percent marketshare,

followed by Motorola at 10 percent, Samsung 7.5 at percent, Siemens at 7.4

percent, and Sony/Ericsson at 7.3 percent. Alcatel has tied up with Fujitsu to

market the Evollium solutions for 3G wireless applications. Also, it has had its

share of success. Alcatel claims to have conducted on 31 October 2001 the first

voice, data, and video communications on the Orange UMTS mobile infrastructure

installed in Paris. It also claims to be involved in several other UMTS

deployments. On the handset side, it is following the example of Ericsson-Sony

and is actively looking for a partner.

Then it has other gaps to fill. For example, in the enterprise segment,

Alcatel is still seen as more of a traditional telecommunication equipment

provider (also to an extent EPBX vendor) than an "IP vendor". However,

after the acquisition of companies like Newbridge and Xylan, it has been able to

make some precious inroads. More and bigger returns are expected from these

smooth acquisitions in the years to come. Alcatel has also made a significant

acquisition in Genesys to target the fast developing contact center solutions

market.

Given the current fiscal situation, Alcatel is also under severe pressure to

improve its operational efficiency. This has meant several restructuring as well

as reductions in the workforce. Alcatel wants to remain focused mainly as a

service provider company. It is in the process of doing away with the divisions

and activities that it does not consider as its core competency. As part of this

process, some of its manufacturing plants have been sold off. Today, it

increasingly outsources its hardware manufacturing and software development to

other companies. Also, its cable division has been spun off into a new company

called Nexans.

While exciting applications like mobile Internet, interactive TV,

video-on-demand and mobile gaming will open up many more opportunities, the

telecom market of the future is a tough one. The number of contenders have

increased rapidly and prices of equipment are being fast driven down by market

realities (service providers’ ARPUs are coming down while capex is

increasing). Alcatel is trying its best to be in sync with technological

developments. Will it be there when the action takes place?

Nareshchandra Laishram in Paris

"Partnering with big SPs is our aim"

Gerard Dega, executive vice-president,EMAI, Alcatel

How

do you see the consolidation of telecom services business in India impacting

Alcatel’s business?



A. As the trend moves towards national players than regional ones, there
will be more financial stability in the market. We can expect more of reliable

and larger clients in the near future.

Won’t opportunities shrink due to the reduction in numbers of operators?



A. It is always good that our customers attain financial fitness. In

the end we prefer to have less customers but customers who are big and national.

We will do all we can to get selected by these large service providers as their

partners.

Do you see yourself picking up stakes in Indian operators? Or given the

bad state of finances, does it mean an end to your vendor equipment financing

activities?



A. Alcatel is clearly an equipment manufacturer developing solutions

for carriers. We don’t want to be a carrier or be seen as competing with our

customers. We normally do not finance projects. But, when our customers do not

find support from banks and financial institutions due to the global gloom over

telecommunications, we have no alternative than to finance them. But we are

highly selective.

What kind of fund do you have for that?



A. Our exposure for that is to the tune of $1 billion. As soon as the

project reaches sound operations, we would want to transfer the investment to a

bank or a financial institute.

How do you foresee the world of telecommunications coming out from the

current recession?



A. Although voice remains the most obvious applications of

communications, there is more and more demand for data. I am very confident of

this new trend. Obviously this trend is not linear, there will be ups and downs.

How important is the Indian market to Alcatel?



A. We have a lot of hope on the Indian market. Earlier there were

regulatory problems, high licence fees... But now the market is coming again.

There is consolidation. Also there is the restructuring of incumbents like BSNL,

VSNL and MTNL. These are all positive signs.