Alcatel buzzing on Telecom take-up

By PETER GRIFFIN

Telecoms equipment maker Alcatel estimates that up to 20 per cent of its revenue may soon come from deals similar to its outsourcing contract with Telecom.

At a presentation to Asian press in Shanghai last month, Alcatel held up its partnership with Telecom as a model it would like to repeat around the world.

In June Telecom gave Alcatel the job of moving the company to an all-IP (internet protocol) network and responsibility for its existing copper wire-based network in a $120 million, five-year deal.

The deal, one of the most extensive in the world for a fixed network, involved the transfer of 200 Telecom staff to Alcatel.

Alcatel's vice-president and chief technology officer for Asia Pacific, Christian Gregoire, said the company's business was characterised by traditional vendor-operator relationships where equipment and services were sold to telcos with limited operational input from Alcatel.

But the Telecom deal signalled a change that was now accounting for "a small fraction" of Alcatel's revenue. It could grow to 20 per cent within five years.

"You look at IBM. They generated 30 per cent of their revenue after just a few years through such partnerships."

A 12-year veteran of Alcatel and former engineer at the French Atomic Energy Agency, Gregoire would not divulge the savings or projected revenue increases Telecom was expected to make with the move. But he said the take-up of early IP-based services such as IP virtual private networks (VPNs) and IP Centrex would benefit Telecom early on.

"Acceptance in the marketplace is going to take some time. But we believe the next two to three years are going to be very rewarding for Telecom."

IP-VPNs allowed data services housed on Telecom's network to be sent directly to a customer's corporate LAN (local area network).

IP Centrex allowed the deployment of voice and messaging services usually run through a traditional telephone switch. Telecom was moving to deploy both services on a wide scale.

Through a "risk-reward" scheme, Alcatel extracts more revenue from its deal as take-up of the new services increase.

Gregoire did not expect the depth of the outsourcing model to preclude Alcatel from working with several operators around Asia Pacific.

He said strict legal agreements and operational separation meant Alcatel could effectively juggle several partnerships in one region.

"We have extremely strict rules in order to keep the proprietary information of Telecom ... otherwise the business is dead tomorrow morning."

Gregoire said the more extensive outsourcing deals Alcatel was pursuing did not indicate it wanted to become an operator itself.

"The link to the end user is really a big step. We're never going to become a competitor of our customers."

Nor was Telecom locked into an Alcatel-centric upgrade path.

If Telecom requested it, Alcatel would have to eat humble pie and source equipment from competitors.

"It would be very easy to say that the next evolution will be all Alcatel equipment.

"We are not going to be an exclusive supplier for the equipment.

"It's not what we or Telecom are looking for."

* Peter Griffin visited Shanghai as a guest of Alcatel.