Service providers' capex cuts and lack of credit to finance greenfield operations are a major threat to the development of the WiMax market

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Alcatel-Lucent has been making losses for the past seven quarters, which stretches back to the creation of the company in 2006 through Alcatel's acquisition of Lucent Technologies for $11.4 bn. Ben Verwaayen took over the reins as the CEO around five months back-a time when analysts criticized the company for its failure to cope up with its Asian competitors like ZTE and Huawei Technologies, besides the European equipment giants like Ericsson and Nokia Siemens Networks. Verwaayen speaks to Voice&Data about his strategies for reviving the company and Alcatel-Lucent's approach in India. He says the market cannot afford to support two competing 4G technologies. Excerpts

You were associated with BT and are known for transforming the company. You have also worked with Lucent for over five years before joining BT. Do you think you can recreate the same magic?
It has been almost five months since my appointment as the CEO of Alcatel-Lucent. You could not hope for a better time to start–the global economic crisis presents us with great opportunities to win business. At the same time it focuses on the choices that we need to make as a company. After taking over the new responsibility, I set out few things for the company's interest. I highlighted and shared with the Alcatel-Lucent employees certain fundamental of our new strategy. Firstly, increased focus on adding value and getting more transparent on how we make decisions. Secondly, strong customer focus and faster execution of the commitments being made to customers. Last, but not the least, what we need to do is repair the profitability of the company.

You have been emphasizing on cost cutting, what measures are planned for India?
Alcatel-Lucent will initiate a set of strong actions designed to reduce the company's break-even point by 1 bn per year in both 2009 and 2010. Our focus will be to enhance R&D efficiency by focusing on four key segments (optical, IP, broadband and applications enablement) and partnering or rationalizing spend in other areas.

We need to reduce SG&A expenses Altogether, Alcatel-Lucent expects that by the fourth quarter 2009 on a run rate basis, it should achieve total savings of 750 mn at constant exchange rate, of which approximately one-third in the cost of goods sold and two-thirds in R&D and SG&A expenses. Currently, I would rather not comment on any India-specific cost-cutting measures.

Alcatel-Lucent has recently received mobile WiMax certification from the WiMax Forum. How do you view this development for the company's growth?
As momentum in the market grows behind LTE as the preferred technology for 4G mobile services, Alcatel-Lucent is focusing its WiMax efforts on supporting fixed and nomadic broadband access applications for service providers. To date, these kind of applications, often referred to as wireless DSL, represent the vast majority of ongoing deployments.

In the current economic context, service providers' global capex cuts and lack of credit to finance greenfield operations are a major threat to the development of the WiMax market, and in particular are a show stopper for the one WiMax market segment with the heaviest capital requirement: massive 4G cellular rollouts. We firmly believe that by offering a clear evolution path to a secure and globally adopted 3GPP standard such as LTE, we are de-risking the future of existing WiMax operators, and reassuring those service providers who are contemplating launching broadband services based on the WiMax standard. Supporting this new vision of the market, Alcatel-Lucent intends to lead the long-awaited convergence of WiMax and LTE-TDD standards in the coming years, as we believe the market cannot afford to support two competing 4G technologies.

How hopeful are you about 3G rollouts in India and China?
India is the fastest growing cellular market in the world. As a mobile base, India is recognized as the second biggest mobile growth market after China. Operators in both India and China are eagerly waiting for government approval to roll out 3G mobile services based on CDMA. In China, mobile operators and equipment makers have long waited for the government to issue licenses for 3G services. In the meantime, operators such as China Mobile Communications have built trial 3G networks to prepare for the eventual rollout of commercial services. There are a number of examples of how 3G can transform lives in India, and even bring some significant societal changes-3G can be a platform for using applications such as security and voter ID, universal access to education, e-banking and e-commerce, real time traffic monitoring. The basic tenets for these applications are pan-India coverage, fast, reliable data connection speeds and the ability to connect for video.

According to some Indian service providers, Alcatel-Lucent is losing its focus in India. Your comments?
I would like to say that Alcatel-Lucent is looking at expanding its Indian operations as we see a strong growth in telecom services and converged services in the country. India is important to us as it is a huge market and also a talent resource base. Even in the present economic climate, there is growth in India. An important element for the market is the strong drive for quality. There are also very creative players and a high number of people with great depth of knowledge and different competing business models who are sensitive to new services than any other market. I see India as a center of innovation and we at Alcatel-Lucent are willing to collaborate with other local organizations to create an open eco-system, bringing the end users a better web experience.

What are the new products in the pipeline?
We remain true to our commitment on innovation. In December, we presented the latest innovations by Bell Labs.They include speechless communications, a unique communication technique that allows users to soundlessly talk on phones. A 'silent speech interface' will enable cellular phone users to communicate anytime and anywhere without bothering nearby individuals. Microprojector, working 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 cell phone, PDA, laptop or video camera, digital stethescope, 3DTV and green technologies.

What will be your strategy for the year ahead?
We will work toward the creation of an open application-enhanced eco-system, which will enable service providers, enterprises and end-users to take greater advantage of today's Web environment as well as its next evolution. We plan to combine the trusted capabilities of the network environment with the creative communications 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 guaranteeing security, quality, privacy and billing integrity. The company will be focusing on three areas: service providers, enterprises, and selected verticals and on four key areas of investment: IP, Optical, mobile and fixed broadband and applications enablement. In terms of the product portfolio we will accelerate the shift of investments towards next-generation platforms. We will be partnering, co-sourcing and participating in the consolidation of the industry to reduce spending for WiMax, CPE, classic core, non-IMS based fixed NGN portfolio and some legacy applications. For full year 2009, Alcatel-Lucent expects the market for telecommunications equipment and related deployment services to be down between 8% and 12% at constant exchange rate, and expects to maintain a stable market share.

Heena Jhingan and Baburajan K
heenaj@cybermedia.co.in