Alcatel-Lucent

Velocix purchase positions Alcatel-Lucent in CDN market

The growing interest of telcos in content delivery networks (CDNs) is the driver behind the acquisition of CDN specialist Velocix by Alcatel-Lucent. We’ve noted both here and in our Netwatcher newsletter that operators like CDNs because it gives them a paying role in over-the-top content distribution, as well as a means of providing their own video-on-demand content services.

Obviously what’s interesting to carriers is interesting to carrier-focused equipment vendors. Velocix has been popular with carriers; the company has deep packet inspection (DPI) and content node assets that Alcatel-Lucent can use in gaining traction in the emerging CDN deals, which in turn may be critical to the emerging content plans of the carriers.

From a strategic perspective, Alcatel-Lucent is also interested in projects like CDNs because they represent both equipment and service revenue opportunities, and they’re likely early examples of the growing trend toward operators letting integration/management contracts for new service-driven infrastructure projects.

Outsourcing operations trend appeals to carriers, too

Sprint is outsourcing its network operationst o Ericsson, the latest player in a series who have taken this sort of step. Alcatel-Lucent has been the beneficiary of most of these deals recently. One might think the whole of the carrier space is outsourcing network operations, but that’s an oversimplification.

Verizon, for example, says it has no plans for network oursourcing. Most of these deals are for pure “NOC” or operations center outsourcing. For some providers, like wireless carriers, that may be a big chunk of total network operations costs, but for access providers, the physical outside plant maintenance part is the great majority. Therefore, everybody doesn’t save a bundle with this kind of deal. Second, the operators tell us these deals are really seen internally as a kind of extended network integration process.

Operators are finding it harder to acquire and retain skilled network personnel and are concerned about the burdens of moving into new technology areas. In modernization and network enhancement projects they’re turning increasingly to integration deals, and these are extending into ongoing operations. Ericsson is likely hoping to use Sprint to develop some U.S. economy of scale in its outsource operation.

Ericsson’s GPON competition with Alcatel-Lucent

Ericsson, which has hardly a household word in wireline infrastructure, may be gaining traction in GPON deployment in China, and we’re hearing that the company is also looking stronger in Europe. GPON deployment on a larger scale is an interesting shift because it permits delivery of broadcast TV as RF-over-glass rather than as IPTV.

An increasing number of providers are telling us that they believe that the RFoG model is better, resulting in a higher first cost but focusing that cost on the most durable and leverageable asset—fiber. Ericsson could play this card effectively against Alcatel-Lucent, which has been conflicted in its PON-versus-IPTV internal debate for more than a year.

Nortel passes; competitors should heed warning

Now that it’s pretty clear that Nortel is gone, the inevitable “what went wrongs” are multiplying. We’ve heard they didn’t innovate, now we hear that they weren’t supposed to. In truth, you can never game the outcome of changes in behavior that it’s too late to make.

Any company, to be successful, has to make its customers successful. There are a lot of paths toward doing that; some rely on innovation and others on integration or being a cost leader. Any company can pick one, but that’s the rub. You can’t pick none, or pick them all. Nortel never had a strategy, it only had a set of tactics to address this or that silo. At a time when “convergence” is the byword of the market Nortel didn’t see its market as being converged, as having a single set of needs and as driven by a single set of conditions. It was, and so they missed the boat.

Cisco or Alcatel-Lucent, both cited by some as examples of what should have happened at Nortel, aren’t out of the woods yet either. The world of carrier and enterprise networking changed forever in 2008/2009 and the remaining players have yet to be tested against the new conditions. Good things, and bad things, are still to come.

Femtocell deployment to test 4G pricing and ROI

Vodafone is planning to release the first European femtocell offering in about a week, using Alcatel-Lucent products. AT&T is also planning to expand its currently limited set of trials immediately, and to have a national offering in late 2009. The moves will be an important step in the evolution of femtocells, and may prove a trial balloon for the 4G deployment of femtocell technology that we’re hearing is an absolutely critical part of nearly everyone’s 4G plans.

With 4G deployment there is a need to manage total first-cost and at the same time give users a reasonable experience. Femtocells in each 4G home would give users an in-home experience with 4G as a baseline even if their own home area wasn’t yet covered by 4G cells, or was covered sparsely. If we see more with femtocells in 2009, we’ll also have a chance to see how carriers propose to price femtocell airtime: Will they discount it or make it free given that their network isn’t really being used? That will tell us a lot about whether femtocells will be a means of encouraging high-bit-rate applications at home where traffic won’t hurt the provider network, or whether providers will try to use femtocells only to get a better ROI by reducing the demand for true 4G cells.

Alcatel-Lucent/HP alliance important sign in converged networking and IT

Alcatel-Lucent and HP have formed a global alliance to deliver converged network and IT strategies to service providers and enterprises, perhaps the most direct validation yet presented of the service layer trends we’ve been discussing for the last year. The alliance will include integration/management services, as well as products. It is aimed at the increased buyer interest in containing vendors involved in deals and assigning key vendors overall responsibility.

In a competitive sense, it’s aimed at both Cisco and IBM, who have been increasingly offering integrated IT/network strategies. This sort of alliance is likely to eventually lead to M&A, though we don’t think Alcatel-Lucent and HP have any mutual intentions. While this is good for the buyer and the market, in the sense that it’s responsive to strategic trends, it shows that network vendors are increasingly facing commoditization at the transport/connection layer because the action is moving up the stack.

Alcatel-Lucent’s mobile ad move

Alcatel-Lucent is supplying technology for a new mobile advertising mechanism based on location and opt-in messaging. The idea is to locate users within a specified distance of a retail location and then send them text messages about special sales, etc.

This is a very positive development for Alcatel-Lucent because it demonstrates the company is prepared to take on service-layer issues on behalf of its customers and also to step in to help prevent disintermediation of operators by OTT players (Google Latitude comes to mind).

Network outsourcing trend grows from operations economics

Sprint is rumored to be looking at outsourcing its network management/operations to Ericsson, another data point in the growing number of management outsource deals. While there are certainly some potential savings involved in this sort of thing, we believe it’s actually pretty clear that savings per se are not the driver.

Sprint and other large operators are more than large enough to reach full operations economies of scale internally with the right tools and support. The problem is they don’t have that, and there’s no prospect of such tools arriving on the scene because of logjams in the standards processes. The outsourcing trend, in our view, is the result of long-standing operator angst about escalating operations costs and risk, and the lack of any systematic vendor support for new options to hold down costs.

By negotiating a deal with an outsourcer, operators can let the outsourcer do what’s needed, defying standards and other factors. In the long run, this may create an enormous advantage for vendors like Alcatel-Lucent, Ericsson, and NSN, which have large and successful outsourcing businesses. After all, while outsourcers don’t dictate network purchases, they are certainly in a position to influence them.

Alcatel-Lucent focuses in on management contracts

Alcatel-Lucent announced yet another managed service deal, this one with Bharti Airtel. We’re starting to believe the company is making a very specific and broad shift into the service space, focusing on its operations/management integration skills (which we cited in our SWOT analysis). This could be either to gain quick traction in the service management area, which is critical, or to build margins that are under pressure from equipment commoditization—also critical, but without the details of the deals we can’t be sure margins are adequate. In any event, the experience in service operations will be valuable for the company.

EU telcos weigh economics of network management outsourcing

The EU says telcos there are weathering the economic storm so far, better in fact than most industry sectors. This contrasts with other stories that telcos are outsourcing network management to reduce costs.

We think that the truth of the situation is closer to the EU version. We’ve found no indication in our surveys that telcos see network management outsourcing as a major path to cost reduction, and if one thinks about the issue, it is clear that unless the outsourcer has better economy of scale than a telco, it’s doubtful that such a move could be a win-win.

What we think is happening is that telcos are realigning their business models based on their current conception of monetization opportunities and risks. In some cases, this demands focus on new areas, and in others it suggests that there are activities better outsourced to professionals. We think some of the big players making deals with Alcatel-Lucent and NSN fit this model. There simply is not enough money on the table to make an outsource-for-cost-reduction decision prudent. For Tier 2/3 providers, however, labor availability issues may make an outsource decision mandatory.