Is Half a Loaf Enough for Alcatel-Lucent?

Alcatel-Lucent announced its numbers this morning, and while their results met expectations on the revenue side they fell short of Street estimates on the profit line.  That sent their shares skidding pre-market, making them another telecom equipment casualty.  The financial analysts are calling this a second-half market weakness, but of course it’s more than that.  Some of the big research firms correctly pointed out a couple weeks ago that capex was in decline and that the only redemption would be improved monetization.  A few even pointed out that monetization was the focus of those projects most likely to get funding.

What makes Alcatel-Lucent interesting is that they are one of the strategic-influence winners.  Their revenue line suggests that their mobile services strength was indeed enough to get them good engagement.  The thinner profits suggest that they need a better and broader monetization link to sustain margins in competition with the increasingly credible and aggressive Huawei.

The concept of Application Enablement that’s been a foundation for Alcatel-Lucent positioning for several years is a good one; make the network a partner to applications and you provide a means for operators to monetize new services by creating new network-enabled applications.  The company’s work on the API and developer end of the story has also been strong; they have in fact the strongest and most credible developer program aimed at creating developer-enhanced high-level services.  Their issue has been that they lack an articulated framework for providing the authoring of those enabled applications.  This is the same problem that everyone else in the space has been grappling with, the one we said that Juniper had to solve in our blog on them yesterday.

What is interesting is that we KNOW that at least one of Alcatel-Lucent’s competitors has such an architecture, but the question is whether it’s been “articulated”.  NSN did a preso at the Dublin TMF World meeting, and in it they showed the outline of a service-layer approach that’s completely consistent with the picture we draw and completely compatible with the content and mobile monetization frameworks we’ve published over the last two month in Netwatcher.  They even fit the cloud monetization model that’s scheduled for publication this month.  What’s missing there is first an open and public release (analyst material isn’t public unless we’re told it is, and in any case buyers may or may not have seen the material), and second the details on how the architecture can be used to build services.

It almost seems like we’re in a race to tell people about something we’ve already done rather than in a race to do it here, and I’m confused over the “why” of that one.  I know from both surveys and from project reviews of operator content monetization activity that Alcatel-Lucent’s details aren’t making it to the buyer level, and in most cases the buyers don’t know NSN even has details to share.  I guess the guy who sings first is going to win this one.

Alcatel-Lucent’s 28% growth in IP revenue should be of concern to its competitors because it seems to me a pretty convincing indicator that you can sell more routers if you can show buyers how routers make money and not just carry traffic.  Routers out-grew their mobile stuff, in fact.  If this growth trend continues, then Alcatel-Lucent poses a major threat to any of Cisco’s back-to-basics intentions.  It would also put Juniper on notice that loss of influence in services could translate to loss of market share to Alcatel-Lucent, who in my view is already Juniper’s biggest threat.



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