Alcatel-Lucent: A new era for intelligent networks

11 October 2011 | Kavit Majithia

The talk of telcos transforming business models to accommodate new technology is at the forefront of discussion in the wholesale market. For solution providers, like Alcatel-Lucent, there is a constant need to innovate and add value to its operations. Kavit Majithia investigates Alcatel-Lucent’s strategy going forward into a new era for intelligent networks.

Where does the line cross between technology solutions provider and vendor? A vendor, in this market, is typically defined as the hardware infrastructure provider to telecoms networks that enables connectivity to the end user.

The role of a technology solutions provider is seemingly very different, and is not limited to the fundamentals of only providing simple hardware infrastructure to its customers. It is clear, in an industry where there is constant innovation and adaptation of a service to improve the end user experience, this segment of companies has had to invest a lot more in their own technologies and provide a wide array of products to ensure they are still industry leading and relevant. In this case, Alcatel-Lucent could be considered as the pioneer to the premise.

Merging for growth

The fact that the company generated €16 billion in revenue in 2010 is both surprising and impressive – particularly because the separate entities of Alcatel and Lucent Technologies have only being a combined company for five years. But with operations in over 130 countries, a wide range of products and an extremely healthy R&D platform, Alcatel-Lucent now claims to be a leader in mobile, fixed, IP and optics technologies.

Through its Bell Labs research facility, the company has invested over €2.5 billion in R&D, achieving a patent portfolio of over 27,900. Despite this, Houston Spencer, VP corporate messaging and CMO for UK and Ireland at Alcatel-Lucent, reflects back on a time when there was a recognisable shift away from the company’s primary innovative platform.

“It is fair to say, and it is also widely recognised, that when Alcatel and Lucent came together in a merger back in 2006, it took us some time to digest that, which may have shifted our attention – a natural progression when two large companies come together,” he said. “Over the past few years the focus has turned back to fundamental innovation. Internally, we recognise that our end users and customers are hungry for big breakthroughs and not just little incremental improvements.”

Groundbreaking technology

Recognising the need for big breakthroughs is one thing, but delivering them is something else. There is now a greater demand, possibly greater than ever, by customers that constantly want more from their service provider. As a result, the pressure placed on a company like Alcatel-Lucent is huge – whether it’s on the service side of the business, on the network or on the application. With huge pressure comes huge claims and Spencer’s announcement that the company has made a chip available in the market that will soon have the capacity to run devices at 400Gbps is possibly the biggest made in some time.

“Considering increasing capacity requirements on networks, we released a chip in June which will serve in the MPLS core of the network and essentially skip us ahead by two generations,” he says. “This is fundamentally a new technology that goes in the middle of the router, serves as a network processor, and quadruples the 100Gbps capacity that is presently available. Most providers will expect a doubling in capacity from 100Gbps to 200Gbps, but this is being leapfrogged through the FP3 chip. As we see more videos flood the networks, as more people use gaming or video on demand, it is exciting for us because we take sustain-ability very seriously. By increasing the capacity on a network by a factor of four, it lowers networking routing traffic by half. This should really be considered a fundamental breakthrough.”

Spencer says the chip will be available in devices by the end of the year, and while many industry experts still question the need for the loosely available capability of 100Gbps, it appears Alcatel-Lucent is second guessing the amount of demand that will come from the proliferation of end-user devices. “As the increasing amount of devices – be they smartphones, tablets, PCs or big screen TVs – are hooked up to one broadband network, the amount of bandwidth consumed increases and the network has to cope with that additional capacity,” he says. “This means, the more traffic you pour in the router, the more you need to be able to shift that traffic to keep up with demand and this could prove a viable solution.”

While the development of the FP3 chip is a relatively new evolution and new technology, the company’s development of its lightradio device has experienced major interest since its launch in February and could significantly transform the hardware infrastructure of both mobile and broadband networks.

Essentially, Alcatel-Lucent has developed a product that is primarily intended to “take a lot of the problems that operators see with mobile and broadband networks and solve them through a small size component that can be held in your hand”, says Spencer. Dubbed as “a network for the next 30 years” by the company, lightradio equipment offers a smaller, simpler alternative to the tall, overshadowing mobile towers that are littered across the skylines of cities and towns across the world.

Its outward benefits are clear, and the company said the energy consumed for mobile access, in addition to the cost of network access is reduced by 50% with the use of a lightradio device. Alcatel-Lucent has secured numerous high profile partners to ensure the development of this product, including Telefónica and China Mobile, but Spencer does not anticipate that the technology will completely replace the base stations that have provided connectivity for decades.

“We will not see the end of mobile towers in at least the next two decades – they are there and they do their job well,” says Spencer. “What lightradio can do is serve the jobs that mobile towers can’t do, such as getting bandwidth and coverage to those who do not get any, or to those who are underserved considering their bandwidth requirements.”

The need for worldwide commitment

On the face of it, the common theme building within Alcatel-Lucent’s strategy is a commitment to upgrading and developing its product base for the next generation of technology. The challenge for the company, according to Spencer, comes with the commitment of both the telecoms operators and the countries they operate in to accommodate such development with core fibre infrastructure and the replacement of existing copper lines.

According to the BuddeComm consultancy, the Asia-Pacific region is leading the way in its deployment of fibre-to-the-home (FTTH) and the region constitutes nearly 85% of the world’s fibre broadband subscriber base, led by China. And while Alcatel-Lucent made its own case for the innovative platform of FTTH, including upgrading the existing copper lines that broadband is presently delivered on to make the transformation to fibre without actually installing fibre lines, it is still dependant on geography – in essence, Alcatel-Lucent is ready when the operator, the regulator and the government are ready to make the transition.

“This is now becoming a question of which service providers will actually make the investments,” says Spencer. “You see a varying landscape in this market. In Australia, with the NBN there is a whole nation that is committed to providing fibre to everyone, and conversely you have the US market where fibre deployment is happening by locality with the major carriers getting this fibre out to different sub-sections of the country. It is no surprise that Asia-Pac is leading the way, with China pledging almost $2 trillion worth of investment in transforming its existing broadband network.”

Telco attitude to R&D and innovation

Smarter networks require investment, and it is clear that in today’s telecoms landscape, operators are no longer solely reliant on companies like Alcatel-Lucent to develop new platforms. More and more telcos are taking matters into their own hands by investing in R&D platforms, quite often through acquisitions within the enterprise and technology solutions space.

UK incumbent BT claims that, as a fixed-line telecoms company, its own investment in R&D stands second only to Japanese telco NTT, and also that it has almost doubled its investment in 10 years, which stood at £361 million in 2001.

Despite this, and the fact that US-based telcos CenturyLink and Verizon have made high-profile acquisitions of technology solution providers over the past year, Alcatel-Lucent does not see such a trend from telcos as a threat to its own operations: “I would not accuse service providers of decreasing investments in R&D, but, for example, if we compare the size of R&D operations today to the size of these departments a few years ago they have begun to shrink,” said Spencer. “This industry has now moved from being fully vertically integrated, where carriers developed their own products and had a manufacturing platform, to an industry where these same companies primarily focus on providing a service. This gives companies like Alcatel-Lucent the task of focussing on fundamental R&D.”

Key Facts: Alcatel-Lucent

History: Alcatel-Lucent was formed in 2006 after a merger between Alcatel and Lucent Technologies amid intense competition in the industry and widespread consolidation. Alcatel Alstom, as it was known up until 1998, had its primary focus in the electric industry. Lucent was spun off by AT&T in the same year, and originally served as an arm of the US-based company’s European operations.

Number of employees: 78,000

Traded on: Euronext Paris and New York Stock Exchange

CEO: Ben Verwaayen

Customers: Alcatel-Lucent’s operation spans across 130 countries and the company serves as partner and supplier of service providers, enterprises, strategic industries and governments.

Products and services: Specialising in mobile, fixed, IP and optics technology, Alcatel-Lucent offers a range of products and services to its customers including application enablement, end-to-end 4G LTE, wireless IP, Carrier Ethernet, carrier VoIP, network service management and IP telephony.