Alcatel-Lucent‘s CTO Marcus Weldon was in remarkably upbeat mood at a London media briefing last week, dismissing Huawei and ZTE as “less worrying now”, and NSN as a “one-trick pony”.
His agenda, of course, was to instill confidence that the ‘Shift Plan‘ initiated by new CEO Michel Combes would have tangible results in 2014, transforming Alcatel-Lucent, after years of post-merger traumas and restructurings, into a powerful all-IP equipment and services vendor.
The Shift Plan focuses most of Alcatel-Lucent’s growth and profit hopes on IP networking and broadband access, with its strong router range being the crown jewel. While NSN has opted to focus entirely on mobile broadband, for Alcatel-Lucent the key is to integrate all kinds of IP networks, and indeed, the wireless infrastructure business is positioned more for cash than growth. That has led to persistent rumors that the French company might sell those activities, perhaps to NSN, but it certainly recognizes the tough climate for mobile systems, even amidst the wave of LTE upgrades.
That will make it dangerous to be mobile-only, argued Weldon, who is also head of Alcatel-Lucent’s research arm, Bell Labs. "I was impressed with how fast they did what they did," he conceded, but warned that NSN, now fully owned by Nokia, was exposed to the volatile nature of the mobile market, in which upgrade cycles lead to tremendous ups and downs in carrier spending year-by-year. NSN is in a lot of countries "that have tremendous volatility”, he added. ”They're now a one-trick pony in a tricky market."
One of the reasons the mobile networks space has become so tough, and why so much consolidation has taken place in the past few years, has been the expansion of the two big Chinese suppliers, Huawei and ZTE. When they first entered the market, they reset pricing norms, especially in emerging markets but also in Europe. Even when their equipment was considered of lower quality than that of the established vendors, they provided a very useful bargaining chip for operators, and in recent years, they have matched and often outstripped their older rivals in terms of quality and innovation, especially in LTE and flexible multimode systems.
However, Weldon insists they have limited opportunity to take further market share for political reasons. Huawei‘s chairman said last week that the firm was not pursuing new infrastructure business in the US for now because of government hostility (purportedly on national security grounds). Some other countries, such as India and Australia, have also put restrictions on buying from Chinese suppliers, citing over-close ties to the country‘s intelligence agencies (something Huawei and ZTE deny). The European Union has been more open, but has recently started to mount probes into Chinese companies, suggesting its attitude could harden.
If governments are motivated by protecting their local vendors, under a cloak of national security concern, they may be acting too late. Weldon believes that Huawei and ZTE did set a price point in the industry, but said that has largely attenuated now”, and that the two Chinese majors often compete fiercely with one another, with benefits for their competitors.
Overall, he sees the infrastructure vendors increasingly moving into areas where they do not have to compete with one another head-on (though he noticeably hardly mentioned Ericsson, still market leader and with its finger in a rising number of pies across the IP landscape). Huawei and ZTE are chasing growth in devices and enterprise, where they are less constrained by government clampdowns, while NSN is more specialized than before.
This should provide a better climate in which Alcatel-Lucent can execute on its Shift Plan, he argued. An important area of differentiation will be his Bell Labs arm. Despite its venerable history, the R&D powerhouse had lost its way and identity after its previous owner, Lucent, merged with Alcatel. It didn‘t know what to innovate on because the parent company and industry were in flux. It became difficult to know who Bell Labs should be, Weldon said.
Now it will support a far clearer agenda and can concentrate, in particular, on the key trend in telecoms, the convergence of networks and IT.
Weldon has laid down seven areas of innovation which Bell Labs to address - network capacity, performance, optimization, security, device connection; and applications.
There will be more to come, though Alcatel-Lucent is reducing R&D headcount as it becomes more keenly focused. Weldon does not believe success relies on huge teams but on hiring high level skills for clearly identified areas. In particular, he wants to increase Bell‘s capabilities in cloud platform security, web plat-form innovation and large-scale distributed computer architectures.