Alcatel-Lucent says focus on fast broadband, IP is key to comeback

Admitting to past company mistakes, CEO Michel Combes says the company is poised to take advantage of the rush to the cloud

With its new-found focus on IP networking and fast broadband access, Alcatel-Lucent is poised to take advantage of a worldwide explosion in mobile devices and the rush of service providers and operators to the cloud, company executives said at the networking vendor's tech symposium this week.

At the conference, ending Friday, Alcatel-Lucent executives fleshed out for analysts and media the strategy behind the "Shift" plan to morph the company from a general supplier of telecom equipment into what it has called an "industrial specialist."

Much is at stake for the financially stressed company. The plan, announced in June, calls for the company to shed US$1 billion in assets and become profitable by 2015. In October, the company announced that as part of the plan it would cut 15,000 workers and create 5,000 positions as it executes the strategy.

"We are all at a turning point in the industry," said CEO Michel Combes Thursday at the symposium, held in Basking Ridge, New Jersey, a few minutes drive from the headquarters of Lucent before it merged with Alcatel in 2006. "What was working five years ago for service providers doesn't work anymore."

Alcatel-Lucent customers are struggling to keep up with a number of trends, Combes said. Users may end up having 10 or more devices, which will result in increasing demand for ultra-broadband access to the cloud and high-speed core IP networking technology, he said. "Ultra broadband" is a blanket term Alcatel-Lucent uses to mean fast wireless or wireline connectivity.

Network operator and service provider capital expenditures will likely increase as cloud services scale up to billions of instances, Combes noted. This scenario also calls for operators and service providers to quickly provision new users and services.

In addition, enterprises, facing these same trends, also will have to invest in industrial-strength networking equipment, Combes said.

"Network and cloud infrastructures are intersecting," Combes said, leading to "carrier-like routing within the data center."

All these trends will require networking equipment and software makers to support cloud technology.

"The cloud shift now really defines our future," Combes said. "We have selected one direction to evolve Alcatel-Lucent and we are placing IP -- our growth engine for the last 10 years -- at the center of the company."

While the Shift plan focuses Alcatel-Lucent resources on key trends, it may take a while to judge whether it is successful, analysts said.

"The plan leverages Alcatel-Lucent's strengths," said Glen Hunt, an analyst with Current Analysis. "We have to see how they execute; we have to see some proof points, how they do with customers."

It's still early days for some of Alcatel-Lucent's ventures. Nuage Networks, an Alcatel-Lucent internal startup in Santa Clara, California, for developing an SDN (software-defined networking) platform called VSP (Virtualized Services Platform), was launched in April.

There is a big opportunity for SDN in data centers, said Basil Alwan, president of Alcatel-Lucent's IP Routing and Transport business. "Most data centers still run basic switching in their network," and new users have to be provisioned manually, Alwan said.

"The real power of SDN is how simple we make it to provision," Alwan said, in an interview. "We've sucked all the complexity out of the networking devices and put it into software," he said.

The VSP can work with routers and switches from any vendor, providing an alternative to Cisco Systems, which is likely to try to sell data centers on an entire range of products, Alwan noted.

"We have a real chance to challenge Cisco in the service provider market," Combes stressed.

Nuage has started to take purchase orders for the platform from both service providers and enterprises. Meanwhile, Alcatel-Lucent has had a string of successes with its LTE technology.

"Carriers are moving to ultra-broadband to gain competitive advantage," said David Geary, president of Alcatel-Lucent's wireless business. "There is a huge market-share benefit to being first mover."

During the tech symposium, Alcatel-Lucent announced that its all-IP EPC (Evolved Packet Core) portfolio has been selected to support the nationwide rollout of China Mobile's LTE network, set to be the world's largest mobile ultra-broadband network. China Mobile awarded Alcatel-Lucent 24 percent of its overall EPC network, making Alcatel-Lucent the primary EPC supplier for the entire LTE network.

In addition to offerings for macro networks, Alcatel-Lucent sees opportunities for its small cell product line. The company's small cell products extend coverage and capacity to hotspots and indoor locations, offering operators a cost-effective alternative to take some load off macro networks and quickly meet growing coverage and capacity demands, Alcatel-Lucent's Geary said.

Fixed broadband access network technology also falls within the scope of the Shift plan. While fixed networks were considered a low-growth market, Combes noted, VDSL2 vectoring, which boosts the bandwidth possible over telephony networks, is a strong business for the company.

Combes touched on some of the company's mistakes: "We missed Optical TDM and more importantly we missed W-CDMA."

Now, Combes said, "the ticket to win for us is the execution of the Shift plan."

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