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What the Alcatel-Lucent Merger Means
[April 02, 2006]

What the Alcatel-Lucent Merger Means

President and Editor-in-Chief
 

In a world of consolidating service providers, the consolidation of equipment makers that is serving a shrinking customer base is a logical move. The future of the telecom market will consist of a few large hardware vendors and a slew of software/service companies providing services. These boutique companies will supply such things as games and conferencing services to niche, albeit some potentially large, markets.

Increased commoditization is another reason for this consolidation trend. As technology moves to the realm of IMS, or IP Multimedia Subsystem (News - Alert), technology, it will be easier than ever to mix and match equipment from disparate vendors. In such an environment, commoditization will take hold and squeeze margins.

A good tactic in such an environment is an acquisition in order to help keep you as a dominant supplier in the market.


As we have seen in the computer space, an acquisition of Compaq by HP did little to improve the growth prospects of HP. Dell (News - Alert), on the other hand, was innovative, quick and outmarketed the competition at every turn.

Comparing the PC market to the IMS, service provider or telecom equipment market is not 100 percent appropriate as loyalty in the PC space is not as great as existing relationships are in the telecom space. Just like the PC market, however, the strongest marketer with the best relationships will likely prevail.

In general, consolidation at the top is not a good thing as it reduces innovation and competition. In this case, however, with the AT&T (News - Alert) machine acquiring service provider after service provider, it is undoubtedly the best response to a shrinking customer base.

A guaranteed outcome of this acquisition is that Alcatel (News - Alert) will move more slowly but will work towards one unified IMS, enabling all of its service providers to utilize equipment that is compliant with their infrastructure and (hopefully) with the needs of applications service providers.

This merger will also mark Lucent's return (as part of Alcatel) to the enterprise space. This pits Lucent against Avaya (News - Alert) once again.

Alcatel and Lucent will benefit from being able to roll out products and services across the enterprise/service provider wall, meaning shared development costs for equipment used in bother areas. For example, a softswitch can be used as the basis for an enterprise PBX...an ACD can be used as a hosed ACD solution for service providers, etc.

The downside of this merger is lost jobs and there will be thousands. But one must consider lost jobs are always a bad thing unless they are being lost to make a company stronger so others will have more job security. This is the case with this merger. The only potential downside to this merger is that the company will have so much mass that decision making will slow to a crawl. Also I am a bit concerned about joint French/American ownership as our cultures are not exactly the same.

Perhaps these problems can be smoothed out simply by shipping a box or two of croissants to New Jersey and some apple pies back to Paris.

In any case, as globalization takes hold in the telecom sector, it is taking place in the communications equipment market as well. For those fans of globalization, you will soon be able to use Francs (I mean Euros) to buy your Lucent softswitch.

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Rich Tehrani is President of Technology Marketing Corporation and Editor-in-Chief of TMCnet.


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