Ovum Comment: Vendors not there yet

Yesterday was the opening day of 3GSM. It is a great time for vendors in the mobile market place and furthermore, for vendors which are addressing the convergence area. One year ago, at the same period of time, Alcatel and Lucent as well as Nokia and Siemens were rumored to be in talks.

Ovum's Jean-Charles Doineau comments: One year after this, at a time when we're being snowed with announcements and hype, it is certainly interesting to sit back and have a look at what is happening - behind the marketing.

Both companies have made significant progresses in terms of organization, product alignment, and detailed implementation scenarios for rationalizing costs. Though not formally realized yet, the Nokia-Siemens merger is progressing well - product announcements and corporate messages are going to be out today.

On Friday, Alcatel-Lucent announced results for 2006 Q4 which were disappointing, although expected. The company further pushed job cuts up to the 12,500 headcount - up by 3,500 against the previously released numbers. But more importantly, Alcatel-Lucent re-iterated a negative outlook for Q1 2007, walking in the steps of Ericsson which earlier this month announced an outlook for 2007 which was less positive than expected. Chinese vendors - although growing the top line - are also struggling with profitability. Nortel Networks, earlier this week, also announced further job cuts, in a move to try to recover definitively from its past difficulties.

So what's happening really in the market‾ What's beyond the red curtains of the show which opened its doors today‾

Well, realistically speaking, times are still hard. Big mergers have reduced the number of suppliers, but haven't reduced the number of products they are bringing to market. It should never be forgotten that telecoms is not IT, and that life duration of a telecoms solution might span more than 10 years! Chinese vendors are very aggressive on pricing, and service providers are still very hesitant on convergence. They are looking for ways to increase value through convergence, they don't want it for its own sake. We think there are still too many players in there, and far too many solutions. Outside of being part of the top three in large market segments, margins are going to be very, very, very thin. And this is still going to be true for a few years.

Jean-Charles Doineau is practice leader for service infrastructure