Enterprise profile boost

A merger between Alcatel and Lucent Technologies will not only create a global telecommunications equipment powerhouse, but also boost the pair’s profile in the enterprise market.

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By  Angela Sutherland Published  April 16, 2006

|~||~||~|A merger between Alcatel and Lucent Technologies will not only create a global telecommunications equipment powerhouse, but also boost the pair’s profile in the enterprise market. Research firm Gartner says both companies are eager to expand their enterprise businesses. “Lucent spun off its enterprise products into Avaya and would have liked to buy that business back but it could not do that,” says Steve Blood, an analyst at Gartner. “Alcatel has been eager to grow its enterprise business, specifically in North America, but has struggled against its main competitors in that market, Cisco Systems, Nortel Networks and Avaya. Alcatel has a strong portfolio of IP (internet protocol) PBXs, and the merger will propel its brand into the North American enterprise market,” he adds. However, it is not going to be a panacea for the two companies. The task of bringing the Alcatel and Lucent products under one umbrella will be particularly difficult for the enterprise business. It is a colossal consolidation and integration will take a long time. Industry experts says customers looking at ways of exploiting opportunities, will have to wait between six and 12 months because a lot of time will be required to iron out the details. While there may not be a strategic shift in the enterprise sector, the new entity will have enormous resources to look after enterprise customers. Together, the two vendors will have more than 26,000 engineers and researchers, 25,000 patents and a huge research and development (R&D) capabilities. The communications equipment market has been long overdue for consolidation. Telecom equipment has been one of the longest suffering areas in IT. In their heyday, vendors like Alcatel, Lucent and Nortel dominated the market, establishing proprietary standards, making rules and setting the pace of change. However, internet has changed all that, forcing telecom equipment makers to change their game. Although it has not been easy to adjust to the new environment, telecom equipment makers have taken steps to develop products designed to move internet traffic. Now they are joining forces to become efficient. Alcatel and Lucent Technologies have entered into a definitive merger agreement to create a global communications solutions provider with a broad wireless, wireline and services portfolio. The two vendors say the primary driver of the combination is to generate growth in revenues based on the market opportunities for next-generation networks, services and applications, while yielding significant synergies. The combined company, which will be named at a later date, will have an aggregate market capitalisation of approximately $US36 billion. Upon completion of the merger, Alcatel shareholders will own approximately 60% of the combined company and Lucent shareholders will own approximately 40% of the new entity. The merger is subject to regulatory and governmental reviews in the United States, Europe and elsewhere, as well as the approval by shareholders of both companies and other customary conditions. The transaction is expected to be complete in six to twelve months. Until the merger is completed, both companies will continue to operate their businesses independently. “This combination is about a strategic fit between two global communications leaders which together will become the global leader in convergence,” says Serge Tchuruk, Chairman and CEO of Alcatel who will become non-executive chairman of the combined company. “A combined Alcatel and Lucent will be global in scale, have clear leadership in the areas that will define next-generation networks,” he adds. Patricia Russo, Chairperson and CEO of Lucent who will become CEO of the combined entity says: “The strategic logic driving this transaction is compelling. The communications industry is at the beginning of a significant transformation of network technologies, applications and services -- one that is projected to enable converged services across service-provider networks, enterprise networks and an array of personal devices.” Russo says the move presents significant opportunities for the new entity to accelerate its growth. As for end users, she says they will benefit from the having the ability to design, build and manage increasingly converged networks that deliver the most advanced communications services to the market. “That is what this combination will deliver with an unparalleled focus on execution, innovation and service for our customers.” On the homefront, Alcatel says the merger represents a unique business combination of two companies that share the same vision. End users and partners will benefit from a strong geographic and product portfolio. “In the Middle East, where Alcatel has a strong presence and major footprints in countries such as Egypt, Saudi Arabia, Jordan, Pakistan, Qatar and the UAE, the combined headcount, capabilities and customer relationships will enhance the competitive standing. It will also give us the possibility to reinforce, at regional level, the role of a leading global communications solutions provider,” says Vincenzo Nesci, vice president for Alcatel Middle East. “What these companies can accomplish together far exceeds what Lucent could do alone.” As of December 31, 2005, the combined companies had 88,000 employees, and approximately 8,800 jobs will go. Alcatel’s Middle East operation has 1000 staff, and the telco does not anticipate any redundancies at this stage. “Both companies have several programs in place to retain people. Despite the consolidation that will occur, there will be great opportunities for people,” says Nesci. As for regional partners of both vendors, Alcatel says it will work with it them and conduct a thorough analysis of its partner relationships to determine what is best for the new entity. “Our customers will benefit from a partner which has the scale and scope to design, build and manage increasingly complex networks that deliver the most advanced communications experience,” Nesci adds. Market analyst IDC says the merger will benefit end users in the Middle East. Although Alcatel will take the lead role, customers will benefit from a greater push for Lucent products and technologies. “The combined company will do well in the region because of Alcatel, however, it is mostly about products, rather than a complete change of strategy,” says Mark Rotter, IDC program manager MEA Communications. “For the Middle East, it will be a pure benefit: we will see additional products and synergies,” he adds. Customers of both vendors in the region include Saudi Telecom (STC) and Etisalat. In 2005, the Middle East and Africa (MEA) region was responsible for 14% of Alcatel’s annual global revenue. For Lucent, the region contributed 1% in the same period. Another challenge Alcatel and Lucent executives will have to address along the way is which path to follow. Will it be the path of Lucent, which focuses on services and to carriers, or that of Alcatel, which is delivers a broad range of enterprise system? Alcatel says it is too early discuss details of products lines at this stage. ||**||

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