The recent merger of telephony vendors Alcatel and Lucent Technologies will form one of the biggest telecoms vendors in the world. If the firms had merged in 2005, their combined turnover would have reached $25bn, marginally higher than the $24.8bn that networking giant Cisco achieved that year.
In the fast-paced convergence market, the ability to release the latest products quickly is vital. And the embryonic state of the sector means that a champion has yet to emerge. The combined forces of Alcatel and Lucent will have the largest R&D capability in communications.
However, ironing out the difficulties in merging two pan-Atlantic organisations is no mean feat. A 10 per cent cull of its combined 26,100 workforce has already been confirmed, and a new name has yet to be established.
The deal was branded “a merger of equals”. But this is rarely the case. The board will have six Alcatel directors, six Lucent directors and two new additions. Lucent chief executive Patricia Russo will head-up the new company, while her opposite number at Alcatel, Serge Tchuruk, will become non-executive chairman. More significantly, the new company will have its headquarters in Paris, in Alcatel’s homeland of France, and 60 per cent of stock will be owned by Alcatel shareholders.
CRN reported from Alcatel’s Annual Forum in Paris in February (CRN, 20 March), where the vendor outlined plans to expand into the UK channel. Being 100 per cent indirect in the UK, the vendor underlined the importance of the channel for its growth. But what can partners expect following the merger?
Both Alcatel and Lucent are not adding much to official statements. However, Paul Ballinger, sales director for the UK and Ireland at Alcatel, told CRN: “It [the merger] makes us the biggest telecoms vendor in the world, and it strengthens our enterprise portfolio. It will benefit our channel in terms of brand presence. I’m sure there will be new products in the future.”
Graeme Allan, vice-president of north Europe for Alcatel’s enterprise solutions division, said: “Not only will the combined company want to keep its enterprise activity in its portfolio, but it also intends to boost its future development by leveraging Lucent’s name and presence in North America.
“It is a major competitive advantage to be present in both enterprise and carriers areas. We will be able to help our telco customers build their hosted services proposals towards corporate customers with managed communications services. Corporate customers represent more than 30 per cent of telcos’ revenues.”
Russo said: “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.
“This presents an extraordinary opportunity for our combined company to accelerate its growth. The combination creates a new industry competitor with the most comprehensive portfolio that will deliver significant benefits to customers, shareholders and employees.”
With the marketing machine in full swing, and terms such as “significant transformation”, “extraordinary opportunities” and “significant benefits” already common, it is hard to flag up the actual changes that the Alcatel and Lucent channels can expect. The channel appears equally unsure about what to anticipate.
Tom Perry, head of marketing at Alcatel reseller Freedom Communications, said: “We don’t know the exact details of what will happen yet. However, we think the merger will be very positive, and we are looking forward to new marketing and product initiatives. The Alcatel and Lucent product fits are excellent. We expect some good US marketing pushes.”
Perry said the merger shows a level of ambition from Alcatel, which he we lcomed. He added that the channel is unlikely to see any changes in the next quarter.
John Massey, managing director of Alcatel reseller Actimax, was also positive about the merger.
“I see no harm coming to Alcatel partners,” he said. “The merger can only help with product development. The bigger the company, the better.”
One thing that VARs can expect is product releases over the coming quarters. Massey said these launches could force rivals such as Cisco, Nokia, and Siemens to look to partner, merge or acquire. There has been little comment so far from others in the networking space, but a merger of this magnitude will undoubtedly ruffle a few feathers.
Rob Shervill, senior manager for channel strategy and support at Nortel, told CRN: “We are wondering what the output will be from two major companies coming together, and exactly how that will translate to the market. It is a powerful announcement, but will it affect the telecoms market in the short term? A coming together like this takes time to translate into something new.”
Shervill added that the merger does not affect any of Nortel’s plans, but he admitted that the vendor is “mindful” of such deals as part of a continued process of monitoring competitors and reacting to changes in the market.
“It’s not a question of being worried,” he said. “It [the merged firms] is going to be a superpower, but it will have challenges in how it manages its business, because there are two different cultures coming together. It would be shocking if it doesn’t come up with something significant in the next few months. There has to be something significant to come from the merger, otherwise it is basically just two firms sharing revenue.”
Jess Thompson-Hughes, managing director of voice and networking distributor React Technologies, said: “[Alcatel and Lucent] could have been in trouble, or else why would they merge? They are hoping the merger will make them big enough so that more customers will go to them.
“The channel will see no benefits yet, but VARs will need to be trained. Resellers can expect to have to pay for more courses. The new company will probably be called Alcatel, and it will take a while for it to settle down. In the meantime, Cisco will make gains.”
However, Alcatel hit back at Thompson-Hughes’s comments. A representative at the company told CRN: “The primary driver of the combination of the two companies is to generate significant growth in revenues and earnings. These will be based on the market opportunities for next-generation networks, services and applications. The combined company’s increased scale, scope and global capabilities will enhance its sustainable shareholder value from year one.”
Will Morey, director at Avaya, BT and Nortel distributor Crane, said: “It will be an interesting merger from a cultural point of view: a French firm acquiring a US company. The combined entity is very significant. It makes the market more competitive, and we could see a major new challenger forming.”
Stephane Teral, directing analyst at Infonetics Research, said: “If Alcatel thinks it will change the leadership of the next-generation voice landscape by merging with Lucent, it is misguided. Lucent solidifies Alcatel’s position in the broadband and optical markets, but not in the next-generation voice space.”
Jean-Charles Doineau, service infrastructure practice leader at Ovum, said: “This new company will benefit from having more financial capabilities to support the important R&D long-term bets that a network equipment provider has to undertake.
“The agenda of the new company is pretty clear, and will certainly be focused on delivering operational efficiency gains at the very beginning.”
There is little doubt that Alcatel and Lucent form a powerful force on paper, but it is far too early to label the deal a success or failure. However, the cynics will be circling by the end of the year if the merger has failed to live up to expectations. The success of the firms’ extended R&D capabilities is vital to the merger’s success, because size really won’t matter if money isn’t made.
Alcatel (0870) 903 3600
Crane (01444) 230 004
Freedom Communications (01923) 654 321
Nortel (01628) 432 000
React (01256) 345 625
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