A “European Approach” for Us All?

Speaking yesterday at BBWF, Alcatel-Lucent’s CMO Stephen Carter talked about the need for creating a “European approach” to 4G broadband.  Some of the specific points in the talk weren’t new; we need to move beyond all-you-can-eat pricing, we need to add some specific partnership and settlement processes, and we need to recognize the intrinsic differences in the major markets.  What is interesting to me is that all of this is coming to a head right now.  Why that is might be the most interesting thing of all.

The reason is mobile 4G services, and the fact that these services are being driven by smartphones and tablets and even e-readers—appliances.  Mobile disintermediation via appliances is a real risk, and 4G bandwidth levels mean that there is truly an opportunity to create a new model of the user’s relationship to the network.  The risk that new model might end up being a reprise of the OTT-dominated wireline broadband market is very real now.  Further, 4G deployment offers operators a chance to reset the pricing and service relationships—to a point.  Operators either have to take the opportunity and level-set 4G differently, or they have to avoid 4G investment as being something unlikely to pay off for them in ROI terms.

Which of course is Alcatel-Lucent’s issue here.  Arguably companies like Alcatel-Lucent have been most successful in the wireless area, and an operator trend toward stagnation of wireless investment would be a major barrier to Alcatel-Lucent’s future profitability.  But the truth is that they aren’t the only one with a bet in the 4G game.  With the exception of Cisco, whose ambitions for revenue growth are spreading to markets adjacent to networking, every one of the major network vendors is a slave to wireless capex growth because wireline growth is not going to even sustain their current numbers.

What is clear to me is that everyone in the broadband game realizes that 4G is the watershed issue, the place where we either get control of network evolution in an economic sense or admit we can never control it.  In the latter case, it’s clear that we’ll see sharp capex declines beginning (according to our model) in 2012 as ROI pressure on operators constrains network investment.  In the former case, we could see the very thing Carter says we need—immersive broadband that touches all of us in all aspects of our lives, because it can profitably be made to do so.  It’s not a glamorous vision for the US market because we want to believe everything’s free.  It’s not simplistic like Cisco’s vision of driving infrastructure investment simply by forcing more traffic onto the network regardless of the ROI.  But it’s a true vision, and Alcatel-Lucent is perhaps best in all the industry in articulating it.

But can they deliver it?  The principles of Application Enablement are surely relevant to creating what Carter hopes for, but they’re not a sufficient condition as they stand.  There are too many holes in the story of the “European way” when you get to the rubber meeting the road.  Potholes are a bigger threat to ROI than the current disorder in a way, because without a clear path to invest everyone will hunker down and look ahead to when that path becomes clear.  That could hurt capex even earlier.  Four vendors (Alcatel-Lucent, Ericsson, Juniper, and NSN) have assets to build the kind of future Carter talks about, and not just for Europe.  Which one will come through?  We’ll likely know by spring.  Carter’s speech is proof that the issue is too acute to be ignored any longer.

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