washingtonpost.com.
Alcatel Marches Aggressively Into U.S. Telecommunications Industry
By Stephanie Stoughton
Washington Post Staff Writer
Saturday, July 18, 1998
In a nondescript brick building off Route 7 in Ashburn in Loudoun
County, the French conglomerate Alcatel Alsthom SA is hoping to unlock
key markets in the U.S. telecommunications industry for its advanced
products that help form the guts of communications networks.
Although the Paris-based company is one of the world's top five
suppliers of telecommunications equipment, it's largely unrecognized in
the United States, where the market is dominated by firms such as Lucent
Technologies Inc. and Northern Telecom Ltd.
But from its facility in Ashburn and other U.S. sites in Texas, North
Carolina and elsewhere, Alcatel is trying to become a serious player,
overcoming its shyness with its better-financed and better-known U.S.
rivals. One big challenge: It remains weak in Internet-based technology,
though no one company has managed to gather all the pieces of the
merging voice and data technologies, analysts said.
"It's not like the CEO of Lucent wakes up every day and says, 'I'm
worried about Alcatel,' " said Luke Szymczak, an analyst with Prudential
Securities Inc. in New York. "I don't think they lose sleep over it."
Yet the big U.S. telecom manufacturers are starting to hear Alcatel's
footsteps. Serge Tchuruk, Alcatel's chairman and chief executive, has
transformed the once-troubled French giant into a Wall Street "darling
in the last 18 months," said Jeffrey Pittsburg, an analyst with
Goldis-Pittsburg Institutional Services in New York.
The company laid off 30,000 people and announced plans to sell some
locomotive and energy interests. Sales rose 14 percent, to $31 billion,
last year while profit climbed 74 percent to $787 million.
Telecommunications sales represented about 40 percent of the company's
revenue last year, though the company expects that figure to rise
rapidly as Alcatel sheds non-telecom assets.
Last year Alcatel began fattening its U.S. operations by buying Sprint
Corp.'s 49 percent stake in Alcatel Data Networks, which had been a
joint venture between the companies. The division now has 550 employees
in Loudoun County and had $700 million in global revenue last year.
"The first step was Sprint," said Jean-Luc Abaziou, president of Alcatel
Data Networks. "Now, we have the freedom to act the way we want in
Alcatel."
About a month ago, Alcatel announced even more aggressive plans to buy
DSC Communications Corp., a Texas-based phone equipment maker, in a deal
valued at $4.4 billion. The acquisition, which is set to be completed
this fall, will nearly double Alcatel's sales in the U.S.
telecommunications equipment market to about $3 billion.
As part of the deal, DSC and the Alcatel division in Ashburn will be
folded into Alcatel's Texas unit. Abaziou will report to Krish Prabhu,
who will head Alcatel's yet-to-be named U.S. telecom center in Texas.
The acquisition gives Alcatel, which has focused on providing
transmission equipment for Sprint and other long-distance operators,
access to DSC's transmissions and circuit-switching technology. More
importantly, it brings a customer base that includes regional Bell
operating companies.
Although Alcatel has made considerable strides, analysts said it still
needs to make up ground it lost when it bumbled its way into the United
States in the 1980s and ran into resistance from federal regulators.
A more savvy Alcatel has reengineered itself to be perceived as a U.S.
company, analyst Exton said. It has opened research facilities in the
United States and plans to move some overseas manufacturing of ADSL
equipment to Raleigh, N.C.
Alcatel's Tchuruk is trying to push Alcatel into the center of the
churning telecommunications arena, where companies are furiously
searching for the best way to upgrade networks to handle the surge in
voice, data and video traffic. Alcatel is hoping to grab market share by
positioning itself as a one-stop telecommunications equipment maker for
service providers.
Although Alcatel lags behind U.S. competitors in some areas, it's trying
to catch up. One way is by introducing an Internet screen telephone in
the U.S. market this fall and another is capitalizing on its alliance
with Cisco Systems Inc.
Cisco, based in San Jose, needs Alcatel for its expertise in voice
technology as it tries to speed up data traffic over telephone lines.
Alcatel needs knowledge of Cisco's Internet routers. The alliance isn't
unusual. Telecommunications equipment makers have been joining with data
communications companies to offer customers "the total solution."
"Alcatel is a company in transition, moving from a traditional
telephone-oriented equipment supplier to one embracing data
technologies," said Jay Pultz, an analyst with the research firm Gartner
Group in Stamford, Conn. "I see that more of Alcatel's challenge right
now."
Pultz said he is not sure whether the Cisco-Alcatel partnership will
result in serious agreements.
Not true, responded Ed Kennedy, vice president of marketing for Alcatel
Data Networks. A Singapore service provider now is using technology
developed by Cisco and Alcatel.
One of Alcatel's brightest prospects is in the emerging market for ADSL
-- asymmetric digital subscriber line -- equipment. The new gear can
send data more than 200 times faster than a regular modem over standard
copper phone lines.
Alcatel already has made a conquest. In 1996 it agreed to sell about
$300 million in high-speed ADSL modems to four Bell operating companies
-- Ameritech, BellSouth, Pacific Bell and SBC Communications.
Because the modems require the Baby Bells to buy compatible switches,
which Alcatel develops in Loudoun County, the low price fueled
speculation that it had underbid in its desire to grab more U.S. market
share and position itself as the Wal-Mart of network equipment.
Dennis Exton, an analyst with Nikko Securities International in London,
said the low price for Alcatel's modems gives it immediate exposure, and
he expects other companies to follow suit as they compete for ADSL
contracts.
"Alcatel, Fujitsu and probably Siemens will underbid these products," he
said.
A spokesman for SBC Communications acknowledged that the service
provider would need to buy more switches to support the ADSL modems, but
added that the company's primary supplier has been Newbridge Networks
Corp. of Canada, not Alcatel.
Abaziou said the speculation was untrue and that Alcatel was able to
offer the best bidding price because of economies of scale.
Abaziou, a demure, 40-year-old French engineer who leads Alcatel's
division in Loudoun County, is quick to mention that there are only 30
Europeans among his 550 workers; the rest are mostly Americans. He adds
that Alcatel employs about 6,000 engineers in the United States.
"I think Alcatel is investing a lot in the United States," he said.
"Today, this is clearly the message we're getting from our chairman --
to do local development and research. We don't think a company can
succeed in the U.S. by being halfway there."
While Alcatel officials show a different side when they cross the
Atlantic, some things remain distinctly French.
At the company's offices in Loudoun County, conversations in French are
commonplace. On weekends, employees play soccer on the grassy field next
to the building. Earlier this week, Alcatel employees celebrated
Bastille Day by serving French cuisine in the cafeteria, decked with
streamers and flags.
"It was red, white and blue," said Kristin Duskin-Gadd, an Alcatel
spokeswoman. "Actually, that's in the wrong order. It's blue, white and
red. Bleu, blanc, rouge."
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