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Back to normal?

Adolfo Hernandez, EMEA President, Alcatel-LucentTelecom equipment vendor Alcatel-Lucent saw losses grow and revenue drop during the first three months of 2010. Although, positive signs were visible in some markets, they were cancelled out by a component shortage for its wireless access and optical networking equipment. Competitor Ericsson blamed similar shortages for its Q1 perfoprmance as well

According to Alcatel-Lucent's CEO Ben Verwaayen, the shortages were in “everyday, low-cost components”, also used for the automobile and consumer electronics sector industries, which competed for components. The shortfall wasn't helped by the failure of the Chinese manufacturing industry to revamp after cuts made during the downturn. At the time, Alcatel-Lucent didn't want to predict when the supply of components would return to normal, but expected a strong sequential recovery led by growing traffic from smartphones, notebooks and netbooks helped increase the need for new 3G, 4G, optical and IP network equipment, thanks to bandwidth-hungry mobile applications.

“We had a three year recovery plan and now we're seven quarters in,” explains the company's EMEA President Adolfo Hernandez. “And, critically, we're on track.” He points to better than expected results from the US, China and Russia/CIS. “The EU has been sluggish but the US market has been a perfect storm – upgraded networks and new services such as NetFlix have created a booming ecosystem. We've also see growth through modernisation in both India and China. And growth in MEA has come through modernisation – here's there's fewer legacy systems and so the new infrastructure is at a high standard.”

That means widespread interest in LTE (Long-Term Evolution) with two public trials underway (Etisalat in the UAE and STC in KSA). “It's going to be a reality in this region next year,” claims Nicolas Bouverot, Middle East VP. “We're going to be one of the first regions to adopt LTE – everybody's looking at it now!”

“We've been through much of the main product realignment and convergence since the merger, based on a strategy of being a serious player in a few key domains,” continues Hernandez. “I think we're now what you'd call a 'normal' company, in that we're growing, we're profitable, we pay bonuses and dividends…”

The company's “key” areas are all industry hot topics, which should help it to remain one of the big players:

* Fixed and mobile broadband

* Optics

* IP, both as a category and embedded

* Applications and service provision

“Realistically we had more products than we needed in those last three sectors,” admits Hernandez. “But we're really strong going forward with both GSM and LTE, although we're having to fill out our 3G offering to cover some historical gaps in the portfolio.”

Alcatel-Lucent has a double strategy for developing new technologies and products. On the one hand, it will acquire smaller players for key markets (Velocix for its next-gen content delivery network, for example); on the other, it relies heavily on the R&D might of Bell Labs, most recently for IP backhauling. “Bell Labs is a remarkable asset for us. Apart from its global reputation, the stuff it puts out gives us clear market advantage,” Hernandez adds.

However, if making technology work is the least of Alcatel-Lucent's problems, what does Hernandez see as the road bumps on the route to the universal intelligent network right across the region? “Look, technology is never the make or break in a deal. The investment capability of the telco concerned may not be there or there may be legislative or regulatory uncertainty that impacts the projected return model. Some telcos are not clear on the potential for user take-up of apps or contents, although in genenral we find that some six months after bandwidth upgrades are rolled out there's no problem! Mobility advances can be hampered in some territories because the existing infrastructure configuration nmakes it hard to deploy new base stations. Defining mobile architectures and cells isn't always easy. Networking security and confidentiality issues are real concerns for some operators and, finally, lots of passive infrastructure work is required.”

Of course, in most if not all of these areas Alcatel-Lucent is able to offer advice and support, making new business often a combined technology/consultancy sell. “Our area, as an example, is personalisation of services based on customer information. It's a bit like the Facebook model – operators need to understand that customers will share information to get something they want, so there are all sorts of opportunities to create context-based or proprietary services with customer opt-in.”

The biggest change he believes that the industry needs guiding through is the shift by operators from a traditional vertical model in which an SP provides and does everything to a business model based on uncontrolled services, devices and applications via the halfway house of the “decomposed model” where services and devices were not necessarily supplied by the operator.

“The value chain no longer lies in vertical integration,” he believes. “That means that SPs can no longer be reactive to market changes. They need help now to answer key questions about the future of their business. When should they make investments? What business models can they construct around access? How will they tackle converged billing? How can their optimise their networks? What will they do about offloading? And so on.”

What this means for Alcatel-Lucent's business is, he says, is “a much richer dialogue” around application deployment and network development, which plays right into the company's strengths. “There's no cosy part of the value chain and the whole industry is moving in five year cycles, so change is pretty much constant, which is exciting and pretty cool. What we've seen, to simplify the story, is the irreversible shift from a lowest common denominator business to one based on differentiated models.”

And the future? “For the past decade, we've been talking about convergence and now it's happening everywhere. Voice went from fixed to mobile, then data, then multimedia. Next? I think machine to machine with connectivity between literally trillions of devices. IP will be everywhere, not just in routers but everywhere. And the cloud, of course – we'll need to provision intelligent layers in the cloud.”

Busy times ahead then for Alcatel-Lucent.

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