Ever since he took over as Alcatel-Lucent’s chief executive officer in early September 2008, Ben Verwaayen has been busy trying to nurse the telecom vendor back to health. Like many other telecom equipment makers, AlcatelLucent is bracing itself for tougher times as the economic downturn continues. Verwaayen has recently unveiled a turnround strategy for the company. In an interview with tele.net, he discussed the company’s new strategy and key focus areas. Excerpts…
How important is the Indian telecom market for Alcatel-Lucent?
India is a major telecom market for Alcatel-Lucent. It is a burgeoning market with a lot of potential. Despite the current economic scenario, there are considerable business opportunities to explore here. The country has unique characteristics that have to be considered. It is a huge market and has a large talented local competence base, which we would like to invest in.
A combination of these factors has spurred the company to reinforce its strategy locally. Alcatel-Lucent is looking at expanding its Indian operations and engaging more with its local teams. We are strongly committed to strengthening our position in the Indian telecom industry and will continue to capture further market share. Alcatel-Lucent is well known in this market for “carriers”.Through the deployment of cutting-edge communications technology, we have significantly contributed to the development of the Indian telecom market.
Today, half of India’s fixed and CDMA wireless lines are powered by Alcatel-Lucent’s technology. Though we are active in these areas, we need to increase company awareness in different domains (such as the enterprise vertical) while maintaining our leadership in the areas mentioned earlier.
How has the company performed over the past one year in terms of revenue growth and market share, both internationally and in India?
In terms of achievements, the year 2008 was not the best but I am bullish about the future. While the company reported a huge decrease in revenue and market share, it performed well in certain areas. I am encouraged by our operating performance, measured by our ability to achieve our top line, operating margin and cash flow targets. It reflects our efforts to move forward. The asset impairment charge that severely impacted our bottom line was made necessary by the drastic deterioration of the global economic outlook during the fourth quarter of 2008. With an improving balance sheet, adequate funding, a new strategy in place and a clear road map to profitability, we are committed to delivering better solutions and services to our customers, and better returns to our shareholders.
What business opportunities does India present, especially now that operators are enhancing capacity and getting ready to launch 3G?
India is recognised as the second largest mobile market after China with over 278 million subscribers. The subscriber base is set to exceed 737 million by 2012. The Indian telecom market is growing at 9 million plus subscribers every month and the potential of 3G to bring about a convergence of voice, data and a myriad user-friendly services popularly referred to as ICE (information, communication and entertainment) is manifold. The introduction of 3G in India will be the next major telecom revolution and we will drive our strategy in this direction.
The availability of sub-$20 mobile handsets has led to explosive demand from lower-income brackets. Operators in India are now eagerly waiting for govenment approval to roll out 3G mobile services based on CDMA. There are a number of examples of how 3G can transform lives in India, and even bring some significant social changes ?? 3G can be a platform for applications such as social security and voter ID, universal access to education, e-banking and e-commerce, and real-time traffic monitoring. The basic enets for these applications are pan-Indian coverage, fast and reliable data connection speeds and the ability to connect for video.
How would you place Alcatel-Lucent compared to rivals like Motorola and Nokia Siemens Networks?
They are more focused in certain parts of the technology landscape. Looking at the numbers, I think they have been able to better execute certain elements of their value chain than we have been able to. But that is only one aspect. The real question is about how we can create value together with our customers in a different way.
What are the company’s plans and specific thrust areas for the future?
Alcatel-Lucent has renewed its business focus. Its plan is to combine the trusted capabilities of the network environment with the creative communication services of the web (Web 2.0, Web 3.0 and beyond). This transformation will allow billions of customers to use millions of websites from any device, while security, quality, privacy and billing integrity are guaranteed. The overall service experience for end-users ?? consumers and businesses ?? will be improved, and greater value will be created for every player in the industry.
This strategy requires providing an open environment, which does not exist today, where all these trusted capabilities can be available between the network and “over-the-top” applications typical of Web 2.0. It is a challenge that Alcatel-Lucent is uniquely positioned to address, with its long-standing relationship with networkbased service providers and thousands of enterprises worldwide, its capabilities in delivering fixed and mobile broadband and flat-IP networks, and its end-to-end integration capabilities around the globe. In order to execute this strategy, Alcatel-Lucent will undergo a strategic transformation and take significant steps to realign its operations. It will focus on three markets ?? service providers, enterprises and selected verticals ?? and on four key areas of investment ?? IP, optical, mobile and fixed broadband and applications enablement. We will work closely with our service providers, enterprise customers and application providers to make this strategic transformation happen. We want to stimulate a sustainable business model for the industry that will fuel innovation and generate capital investment.
What is the company’s strategy for emerging markets?
Our strategy for emerging markets will follow our global strategy. Alcatel-Lucent is initiating a set of strong actions designed to reduce the company’s break-even point by Euro 1 billion per year in 2009 and 2010. These actions will aim to:
Improve gross margins by reducing manufacturing, supply chain and procurement costs, introducing stricter pricing discipline and, over time, improving the product mix.
Enhance R&D efficiency by focusing on four key segments (optical, IP, broadband and applications enablement), and on rationalising expenses in other areas.
Materially reduce selling, general and administrative (SG&A) expenses, both in absolute terms and as a percentage of revenue, through the delayering of the organisation and the elimination of sales duplication between product groups and regions.
Alcatel-Lucent expects that by the fourth quarter of 2009, on a “run rate basis”, it should achieve total savings of Euro 750 million at a constant exchange rate, of which approximately one-third will be through the cost of goods sold and two-thirds in R&D and SG&A expenses.
What are your R&D plans for the future?
Our competitive advantage resides in our commitment to innovation and hence in R&D. In December 2008, we organised the annual Innovation Days at the Alcatel-Lucent headquarters in Paris where we showcased the latest innovations by the prestigious Bell Labs.
The technologies include:
USP ?? Speechless Communications: This research project involves a unique technique that allows users to talk soundlessly on phones. A “silent speech interface” will enable cellphone users to communicate any time and anywhere without bothering nearby individuals.
Microprojector: This prototype of an ultra-compact optical projector uses state-of-the-art laser light sources. The projector achieves high brightness, low power consumption and compactness and can fit inside a cellphone, PDA, laptop or video camera.
Green Technologies
Heatsink efficient cooling: Energy efficiency is increasingly becoming a product differentiator. This presentation will highlight new heatsink design and better airflow designs such as vortex generator, and more forward-looking cooling technologies such as liquid cooling and vapour chambers.
3D TV: Researchers will demonstrate 2D+Z coding ?? a new 3D technology.2D+Z is a highly bandwidth-efficient technique that is perfect for 3D IPTV deployments. The advantage of this technology is that it is backward compatible with normal 2D displays, while providing a basic 3D experience with only 10 to 20 per cent overhead on an IP network.
Digital stethoscope: In partnership with the University of Pittsburg Medical Center in the US, Alcatel-Lucent researchers are developing a powerful diagnostic tool by combining a stethoscope with a telephone. The digital stethoscope will allow patients to receive expert care even if they are far away from experts.
What level of investments are you looking at over the next two-three years for India?
Alcatel-Lucent is looking at investing in India for several reasons. First, to fulfil the need to get connected where voice and video are both required. The second is convergence, which will drive a lot of markets globally. I can see a lot of technology leapfrogging happening in India because of the vast market and advanced operators here.
In the Indian market, we will follow our global strategy ?? facilitating the creation of application-enabled networks that will enhance the web experience of end-users, service providers and enterprises. As an organisation, we are in a position to address that challenge.
As part of our new strategy, we will accelerate the shift of investments towards next-generation platforms by:
Reinforcing areas of leadership (IP, optics, broadband access, IMS core and CDMA EVDO);
Boosting investment in focus areas (long term evolution, W-CDMA, enhanced packet core, open application enablers); and
Streamlining product offerings on mature portfolios like CDMA1x, GSM, ATM, ADSL, DLC as well as on legacy applications.
Alcatel-Lucent will be partnering, co-sourcing and participating in the consolidation of the industry to reduce spending for Wi-Max customer premises equipment, classic core, non-IMS-based fixed NGN portfolio and some legacy applications. Other actions will be taken in order to have more agile R&D, such as further simplifying the Carrier Product Group from six to four divisions, completing the platform rationalisation programme for W-CDMA and NGN, as well as consolidating our global R&D centres.
