Alcatel-Lucent’s Turn-Around

Half of the board and nearly all of the management committee have been replaced and the 112-year old company has traded its grandiose headquarters on Paris’ Rue La Boétie for a far more compact building near the Eiffel Tower. In lieu of an enormous office with plush carpeting and expensive art, Alcatel-Lucent’s chief now works from a simple office that anyone can use when he is not in. He ensures that employees talk with him and each other by mandating start-up style open office space and crowdsourcing input on a new internal social network.

Since leaving his position as BT’s chief executive in September 2008 to take on the top job at Alcatel-Lucent, chief Ben Verwaayen has made it a priority to knit together the companies’ employees, divisions and technologies, cut costs, and improve communication.  It is not surprising then that the same ethos is now permeating the equipment the company makes.  On Feb. 7 Alcatel-Lucent unveiled radically different mobile networking gear that brings together separate divisions’ technological strengths while cutting the cost of the equipment in half, saving space, and improving the way people in far-flung corners of the earth communicate with each other.

It’s called lightRadio and it says a lot about the future of networking and about the future of Alcatel-Lucent itself.

 

How different is it? “This signals the end of the base station and the cell tower as we know it today,” Verwaayen said in his Feb. 7 statement.

 

A conventional base station, which links mobile phones to a wireless carrier's network, consists of an electronic equipment cabinet connected by large cables to a group of antennas. The equipment can be the size of a small car, big enough to require its own small building. The large unsightly antennas are mounted on a dedicated tower structure, or on an existing structure, such as the top of a building.

 

lightRadio  reduces the size and weight of base stations that were so heavy they sometimes made the roofs of Europe’s historical buildings sag, making it possible to  start putting antennas everywhere there is electricity and a broadband connection and mesh them to provide dynamic and cost effective connectivity.

 

lightRadio also shrinks today’s clutter of antennas serving 2G, 3G, and LTE systems into a single powerful Bell Labs-pioneered antenna that can be mounted on poles, sides of buildings or anywhere else there is power and a broadband connection.

 

The technology, which is being supported by industry partners Freescale Semiconductors and HP, will be showcased at the Mobile World Congress in Barcelona Feb. 14-17. Some elements will be made commercially available in the fourth quarter; others will be piloted later this year and become widely available in 2012. 

 

The innovation coincides with growing demand for third-and-fourth generation mobile networks and devices involving the mass adoption of wireless television services, video viewing and other forms of broadband content. The total addressable market for the radio technology necessary to serve such networks and devices is expected to exceed €100 billion over the next seven years.

 

Other major benefits from lightRadio include shrinking the carbon footprint of mobile networks by half, reducing the total-cost-of-ownership of mobile operators by up to 50 per cent and improving end user services by significantly increasing bandwidth per user thanks to the deployment of small antennas everywhere. The flexibility of the technology and its size and cost benefits are expected to help governments meet targets for universal broadband access and close the so-called “digital divide.”

 

Ken Rehbehn, a principal analyst specializing in radio access networks at US technology consultancy Yankee Group, says he believes lightRadio will transform the industry. “It will help drive the economics in the right direction,” he says. 

 

 The introduction of the technology also illustrates the radical transformation at Alcatel-Lucent. “Ben brings clear-headed thought processes and the discipline that appear to have been absent,” says Rehben, who worked at Alcatel-Lucent under both former CEO Patricia Russo and Verwaayen.  “There is a much clearer direction in leveraging the strengths of portfolios, and the lightRadio announcement brings this to fruition, drawing the IP assets together with innovation on the radio side.”

 

 Other vendors are sure to follow suit, but by being the first to offer this technology Alcatel-Lucent could steal a march on rivals and improve its bottom line, Rehben says.

 

The company needs the boost. Alcatel-Lucent was formed in the 2006 merger of France’s Alcatel and the U.S.’s Lucent Technologies, with the idea that Lucent’s wireless strengths would nicely complement Alcatel’s footprint in fixed-line and broadband.But the merger got off to a rocky start: During the first two years alone the company posted six quarterly losses and took more than €3 billion in writedowns. Its stock plunged by 50 per cent as Alcatel-Lucent was hammered by fierce competition from Sweden’s Ericsson and China’s Huawei Technologies.

 

 The company has been trying to claw its way back ever since. Two years into its three year turn-around strategy, the company posted expectation-beating fourth quarter results on Feb. 10 – making it the most profitable quarter since the merger.  The company reported revenues of €16 billion for the year as a whole, up 5.5 per cent over 2009, thanks in large part to Verwaayen’s cost-cutting efforts and a retooled product portfolio based on a holistic approach to end-to-end IP networks and the services and applications that run over them. The company said it expects a margin of 5 per cent or more on adjusted operating profit in 2011, which is equal or greater than the market, and that it will achieve its goal of becoming cash flow positive this year.

 

A turning point for Alcatel-Lucent was its Feb. 2009 deal with Verizon on the build-out of the US operator’s fourth generation LTE network.  The contract gave the company “a level of energy and confidence,” says Pierre Barnabé, the Alcatel-Lucent executive in charge of corporate human resources and transformation.  In November 2010 Verizon Wireless announced a follow-on four-year agreement expected to be worth $4 billion for Alcatel-Lucent, covering continuing 3G network expansion and 4G/LTE network build-out.

 

Although the company does have traction in the US, Alcatel-Lucent is less well positioned in Asia and in Europe, where it faces stiffer competition from traditional rivals. In addition, the company will increasingly see itself competing against internet players and new entrants in the mobile space, says Thomas Husson, a Paris-based analyst at Forrester Research.

 

The French equipment maker is trying to differentiate itselfby helping operators develop new business models that will help them fund the build-out of the networks of the future and avoid becoming dumb pipes. “They are working on applications that really leverage the intelligence in operators’ networks,” says Husson.

 

 Alcatel-Lucent wants to link its brand with innovation. It is proud of developments from Bell Labs, which was prematurely pronounced dead in the press a few years back. “It is firing on all cylinders now,” says Verwaayen. And he says he wants the same out-of-the-box thinking and energy to permeate all parts of the company.

 

“The pyramid in the organization has been flattened,” according to Barnabé.

 

“Verwaayen made that clear to top executives from the beginning”, recalls Kenneth Frank, a member of Alcatel-Lucent’s management committee.  Verwaayen called them into a meeting, set some packages on the conference room table and told the participants to each grab one.  Then he revealed the contents. “They are exactly the same,” he told the executives. “We are all in this together.”

 

They soon found out that Verwaayen is a man who means what he says. “You don’t have to go to the CEO’s office, he comes to you,” says Philippe Keryer, executive vice president of Alcatel-Lucent and president of its networks operating segment. “He is really connected with the employees.”

 

Just how connected? On a December 2009 business trip to the U.S., Verwaayen was travelling with several of his executives, one of them a woman.  When they got into their rented economy car, Verwaayen let the woman sit in the front and wound up in the back, wedged in the middle, as they sped off to a chain restaurant to eat Chinese and celebrate a successful meeting with a customer.

 

 “Ben lives like the others, there is no privileged population,” says Barnabe. “This is a new start for the company, we are building something different.”  The unveiling of lightRadio shows that Alcatel-Lucent is doing just that.

 

 

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