FYI: Alcatel-Lucent’s Shift Plan for wireless – focusing on LTE and small cells
On June 19 Alcatel-Lucent’s new CEO Michel Combes announced the company’s latest strategy to turn around the faltering network equipment vendor. Dubbed “The Shift Plan,” in broad terms it changes the company’s focus from being a network generalist to focusing on IP networking and mobile and fixed ultra-broadband access technologies. While the merits of the full plan warrant a discussion all their own, here we are analyzing the impact of the Shift on the company’s wireless division. For 2012, wireless accounted for approximately 23.6% of total corporate revenues – only the services division had a higher revenue contribution (27.9%) for the year. The new plan essentially focuses the company on areas of the wireless market where it has had success and sees growth, and pulls back in areas of decline and where it has limited footprint.
Focus on small cells, although meaningful revenue contribution will not be immediate
With small cells Alcatel-Lucent will continue to support 3G along with LTE. The reason for this has to do with small cells being more of an underlay network – small cell networks reside “under” the macro cell layer. Also small cells are a relatively new market opportunity, and one that requires both 3G and LTE support.
Alcatel-Lucent’s LTE-only focus applies to macro cells, not small cells. As an early leader in small cells, the vendor believes it is well positioned to capture a significant portion of the small cell opportunity as the market matures. It already has wins with Verizon Wireless, AT&T, and Sprint. However, Alcatel-Lucent does not expect small cells to be a significant revenue contributor for several years: under its current three-year plan, it will be 2015 before small cells’ revenue contribution to the wireless division will be in the 10–20% range.
The challenge here for Alcatel-Lucent, as it still wants to grow revenues even during this Shift, is to get its LTE and small cell revenues to offset its declines in the wireless areas it is de-emphasizing. One key to this will be for the vendor to sell small cells into operators where it isn’t the incumbent macro vendor. This won’t be a small task, but it did recently win a contract with StarHub (Singapore) for small cells despite not being the macro vendor, so it can be done.
Geographic focus not as narrow as previously thought
When the Shift was announced, it sounded as if Alcatel-Lucent’s wireless ambitions were going to be limited to the US, China, and its home market of France. This, however, is not the case. Instead those markets serve as examples of where the vendor has already had success with network overlays and small cells. It plans to take lessons learned from those markets to help guide it in targeting other opportunities.
Of course this means that in regions such as Western Europe, where converged networks are popular, the company will not be as active. However, it reports that some operators in that region such as Telefonica are becoming more open to deploying LTE as an overlay. Furthermore, in areas where Alcatel-Lucent has no existing presence or relationships, the vendor will be conservative about committing resources even if the market fits its new more focused wireless strategy. Investing in regions where it has little chance of winning doesn’t fit the Shift’s goal of profitable revenue growth.
wow, great news and its the first in a while which discussed 3G/4G small cells. Perhaps MSPD vision wasn't incorrect just a bit slower. I'm very encouraged by this view as it basically endorses what MSPD focused on. I hope they don't sell too soon. Thanks a bunch Lackey