Strength in numbers

The recently merged Alcatel-Lucent has been quick to highlight the benefits that the company believes will accrue from becoming the largest telecoms network equipment supplier in the world. On a regional level, CommsMEA talks with the new company's country senior officer (UAE, Kuwait, Qatar, and Oman) Mazen Hamadallah about the implications of the merged operation in the Middle East.

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By  Administrator Published  February 1, 2007

CommsMEA: What benefit will the merger of Alcatel and Lucent bring to the MEA region?

Mazen Hamadallah: This is more than a merger between Alcatel and Lucent because there is also a transfer of activity from Nortel toward Alcatel-Lucent, which took place on January 2 this year. So first of all, Alcatel-Lucent merged on December 1, 2006. Alcatel acquired part of Nortel’s business, which concerns 3G mobile networks - the radio part of it - earlier. So the new company is Alcatel-Lucent but also with a portion of Nortel.

When we put together all these things we come up with total sales in the area of Euros 19 billion (US$25 billion). Also we now have about 80,000 employees working in 130 countries. It is a big company, and with all these figures, in terms of revenues, Alcatel-Lucent has become the number one worldwide supplier of telecommunications networks.

We shall be ahead of Ericsson-Marconi, and ahead of what Nokia and Siemens might become if they end up merging. So that will be the line up, Alcatel-Lucent number one; Ericsson-Marconi number two, Nokia-Siemens number three. Then you have a whole bunch of smaller companies like Nortel, Huawei, Motorola, and all of these will be smaller than Alcatel-Lucent, in terms of networks. So this is our position. The merger put us in the number one position for fixed networks and in the mobile market we become number one worldwide in 3G networks.

Now, there are mainly two standards in the world. There is UMTS, which is what the Middle East is trying to implement right now. A migration of the GSM networks to UMTS is now taking place. CDMA technology is one that has already spread in North America, Korea, China and very recently started to penetrate the Middle East through wireless local loop (WLL) deployments. There are movements with this technology in the Middle East right now, and we are happy to be suppliers of certain operators there.

The acquisition of the Nortel’s activity will put Alcatel-Lucent in third position worldwide in supplying UTMS technology, and this is also important in the Middle East because we believe that the trend in the coming years will be towards increased UMTS penetration. We also believe that the introduction of CDMA (WLL) is also going to expand. Egypt has already started to deploy it, so has Saudi, Syria too and Iraq is also looking at this technology.

The impact of our merger is to become number one worldwide in UMTS, if we are worldwide number one it means we have the capacity to give support to these technologies in the Middle East. Of course, what we need for that is a local presence, and this is what Alcatel has had for many years.

CommsMEA: You have mentioned that this merger enables one plus one to equal three. What do you mean?

MH: The merger will bring to us a new product portfolio that will improve our situation. For instance if the Middle East is moving toward UMTS, then definitely the acquisition of the Nortel UMTS radio business gives us the appropriate product to serve the Middle East. Also Nortel’s business will bring us references for 15 world networks, with leading operators. Nortel 3G technology is already used by leading operators in Western Europe, such as Vodafone and Orange in France and the UK, and it is used in Korea; so we are expanding our product portfolio.

Another example is that there is evolution in telecommunications networks towards IP. Most operators have already started looking at evolving their fixed network, from the TDMA technology that is already there, toward IP. The beauty of putting products from Alcatel together with products from Lucent is that it makes us capable of supplying full solutions end-to-end. Last year we signed a very important contract in Holland with KPN, where we did IP transformation with them, transforming the landline network from TDMA to IP. In that case we took products coming from Alcatel, which was our IP MPLS solution, then we added a product from Lucent, which was our IMS solution. Once we put them together we were able to deploy an end-to-end solution. Lucent alone could not do it properly, Alcatel alone could not do it properly, but when we put them together we have been able to do it very well.

CommsMEA: In markets like the Middle East and Africa, where 2G and GSM is still the dominant technology, how do you see your merger impacting legacy networks as they stand?

MH: In the Middle East we can observe two different types of market. The first is the advanced market, in terms of penetration rates, such as the UAE, Kuwait and Qatar; these countries are rich enough to have very strong penetration rates - almost every household has a landline and every adult has a mobile line. So, because almost everyone has a phone, how can you generate more revenue?

Our strategy to increase revenues in these markets is to introduce new services and new applications. There is probably no room to add numbers in terms of subscribers, because everyone has already subscribed. But the existing subscribers can ask for new obligations and new services.

Therefore for this kind of advanced market, what we are trying to push is technologies such as 3G and 4G. In the advanced Middle Eastern markets, we are trying to bring in IPTV, applications that bring video to existing legacy networks, it can be done wired or wireless, but most markets today are trying to do it wired on the existing legacy TDMA network.

IPTV is more than just TV broadcasting, it is interactive, it can give video on demand, it can give conferencing and it can allow you to create customised TV services, therefore the advanced markets are keen on this. Also in advanced markets we are pushing optical access technology. Today we are working very heavily on fibre-to-the-home technology, which is about putting fibre optics into every home. To do that there are several optical technologies, the one that is most recent is GPON (Gigabit Passive Optical Networks). The first country that has contracted and implemented this technology with us is Kuwait, and we have also deployed it in Islamabad in Pakistan.

The second market in the Middle East is the developing market, where penetration is not that saturated, most Middle Eastern countries fall into this category: Egypt, Syria, Lebanon, even Saudi. In the developing markets there is still room for new subscribers. Our strategy there is to build existing network technology - mainly GSM - and expand the landline networks, but to do it at a cheaper cost. Now the merger has taken place we should be able to lower the cost for existing technologies, so operators can reduce cost.

Worldwide we want to drive toward 3 billion telephone subscribers. World population is 6 billion and there are 2 billion who already have mobile phones and 1.2 billion who already have a fixed line and we want to take that total figure to 3 billion. The developing countries in the Middle East will form part of this plan. The key point for us is to reduce cost of ownership in order to make the business case more reliable for any operator to go and invest in building these networks.

Also what we are trying to do in developing countries is increase their internet culture. There are very strong social benefits from installing telecommunications networks, and the internet is bringing a lot of knowledge to society and communities. Today worldwide there are less than half a billion internet subscribers, so we are trying to increase the penetration of broadband. Alcatel is number one worldwide in DSL technology, in October 2006 we had shipped 100 million DSL lines, so that gave us about one third market share worldwide.

CommsMEA: Is there a fear that you may have too broad a portfolio of activity and that you don’t have a focus on exceeding at what you do well? What is in place to ensure that what happened with 3G in Europe during its early stages does not happen again?

MH: In the beginning of 2001, when the internet bubble burst, it is true that all the suppliers started to downsize - there was a problem in the industry. It is now starting to recover and there is a trend toward consolidation. What happened during the past five or six years in the industry is that we tried to focus on niche markets, but this strategy was a failure, no one in the industry has been able to remain sustainable by focusing on one technology or two.

In the industry today there is a valid question: who, five years from now, will survive? The industry believes today that not every vendor will survive. The globalisation effect has put strong pressure on pricing; the price per subscriber has gone down in every technology in the telecommunications industry. To be able to keep enough profit to survive has become a main concern for every supplier, so this is the reason why the solution of occupying a market niche has failed, and this is why consolidation has happened.

We are proud to be the leader of consolidation, because by merging we have become the number one supplier in the world. And this gives reassurance to our customers, because they can be sure, if they sign with Alcatel-Lucent, that we will be here for a long time and we will be able to support their network. No one wants to buy a network with a supplier, only for it to vanish and leave operators with no support.

CommsMEA: In these emerging markets how do you see Alcatel-Lucent staying ahead of those new vendors who have been successful with very aggressive marketing and pricing?

MH: The introduction of new competitors in the market has increased the competitiveness of the sector and that has meant more pressure on pricing. From our perspective, we respect all of our competitors and we are never afraid of competition. Competition is good for the market, good for the customers and good for us. It pushes us to find ways to survive, even with suppliers who are aggressive on the pricing side.

One important thing for us is innovation. This industry is very dynamic, you have new things popping up everyday and if you do not have innovation you will miss out, so we need to be ahead. We have 23,000 scientists and engineers who are totally dedicated to research and development. In 2005 our combined R&D budget was Euros 2.7 billion. Secondly, we already exist in China, we have big ventures there, and we are one of the three biggest suppliers in China ourselves. So we are acting globally.

CommsMEA: How much of a disadvantage is it that Alcatel-Lucent is no longer in the mobile handset business?

MH: Well today there is no disadvantage because we have taken the right measures. We are not the only vendor that has dropped its handset business. The only European vendor that still has handsets is Nokia and its activity in mobile infrastructure is very minor compared to handsets. Therefore being a leader in handsets did not help Nokia on the infrastructure level. We still have R&D in handsets, because we want to test the end-to-end network capability, but we are not supplying volume production.

CommsMEA: What are the key areas for Alcatel-Lucent in 2007?

MH: One priority is to accompany the new operators entering into the market, because there are new licences popping up in the Middle East and we want to be the supplier. Our second priority would be pushing ahead with IP transformation of networks, bringing broadband, IPTV all of these new technologies into the market. Thirdly would be the enterprise and vertical markets, here we address the industries that are not in the hands of operators. There are markets that need telecommunications for their own use, such as the military and the oil and gas industry, and we have a priority to develop our business with them.

Alcatel-Lucent’s merger has created “uncertainties” for its customer base, its CEO Patricia Russo stated last month, warning that the firm would need to take additional cost-cutting measures after it failed to make a profit in its fourth quarter last year. 4Q operating profit was insignificant.

“What happened during the past five or six years in the industry is that we tried to focus on niche markets, but this strategy was a failure, no one in the industry has been able to remain sustainable by focusing on one technology or two”

“We shall be ahead of Ericsson-Marconi, and ahead of what Nokia and Siemens might become if they end up merging, and this is an important place to be”

“From our perspective, we respect all of our competitors and we are never afraid of competition. Competition is good for the market, good for the customers and good for us”

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