Nº 2 2015 > Telecom Industry
Leader Interview with Michel Combes
Chief Executive Officer of Alcatel-Lucent
What does Alcatel-Lucent see as the major factors impacting operators, and/or driving the transformation of the industry?
Michel — There is a single answer to both these questions: network operators and the transformation of the networks themselves are being impacted by the unprecedented and ever-increasing demand for capacity, which in turn is the result of the rise of smartphones, tablets and myriad devices connecting via the Internet of Things. Growth in demand will only increase as we move forward, as the scope of device and machine connectivity expands.
For Alcatel-Lucent, there are a number of outcomes from this. Firstly, we have the strong conviction that network operators — and I mean telecom service providers, as well as enterprises and institutions operating IT networks — will increasingly adopt Internet Protocol (IP) technology to manage the data capacity and traffic challenge. End-users such as consumers and businesses don’t just need more, and faster, data connections, but also more bandwidth — analogous to how having more cars on the road creates a need for more motorways and traffic flow on those roads to prevent congestion.
Secondly, operators must also achieve a combination of operational efficiency and cost efficiency. Virtualization technology has an important part to play here: cloud networking, cloud storage, Networks Functions Virtualization (NFV) and Software-Defined Networking (SDN) all allow operators to move their networks to the cloud and free up vital network resources, and even reduce the physical footprint required for expensive real-estate and energy-consuming hardware — simply put, the volume and energy requirements of hardware can now be significantly reduced.
Thirdly, Fibre-to-the-X (FTTx). The ability to deliver fibre-based ultra-broadband access closer and more economically to residences or places of business — while removing the complexities of doing so — will have a profound effect on the digital society, extending coverage, bridging digital divisions and enhancing community and commercial life.
How will Alcatel-Lucent’s work on G.fast (as well as the work of others) impact the business case for FTTH — can copper compete with or enhance fibre deployments?
Michel — FTTx is still the ultimate end-goal for many operators, as many believe FTTx is the only “future-proof” solution. G.fast is not intended to replace FTTx — rather, copper is a complementary tool to address hard-to-reach locations, while keeping deployment costs down.
The degree to which G.fast is utilized will vary widely across different operators in different countries, as they each encounter unique obstacles in their fibre deployments. However, as such, G.fast can help accelerate the deployment of fibre, because G.fast can help improve the business case. In any given deployment, operators will adopt “full” FTTx where they can, but where they can’t do so either economically or physically (for example, for protected buildings in historical town centres), G.fast is ideal for the final few metres for broadband speeds indistinguishable from fibre. This can also help ensure that operators retain their customers, reducing the average cost of connecting each user.
It is clear there is very strong interest in G.fast. By the end of 2014, Alcatel-Lucent had conducted 23 trials of G.fast, and we currently have another seven in progress. This is significant, as it is of interest to proponents of both copper and fibre.
Editor’s note: see separate article on G.fast in this edition by Alcatel-Lucent.
What are Alcatel-Lucent’s top priorities going forward?
Michel — Since I took over as CEO of Alcatel-Lucent in April 2013, I have had a single priority, and that is the restoration of this company to sustainable profitability. In June 2013, we launched “The Shift Plan”, which was designed to reposition Alcatel-Lucent as a specialist around the growing, next-generation technologies of IP, cloud and ultra-broadband access, while reducing our costs to an acceptable industry benchmark, divesting assets, and reprofiling our debt, all by the end of 2015. As we have reported in consecutive financial results since “The Shift Plan” was launched, we have made very good progress across all of these dimensions. That said, we are only at the beginning of 2015, and we will not judge our progress fully until we are satisfied that we have reached our ultimate aim of being cashflow-positive in 2015, and that remains my number one priority this year.
What have you personally found to be most challenging and/or rewarding about leading Alcatel-Lucent in such a fast-changing industry as telecoms?
Michel — When I joined Alcatel-Lucent, we faced plenty of challenges, not least of which, the company’s apparent difficulty since the 2006 merger to generate profit. Added to that, as you say, we are in a rapidly transforming, convergent industry.
Telecommunications and IT have been coming closer together, as voice telephony has given way to data communications. Today, we no longer communicate via voice and the written word alone as two separate functionalities, but as a combination of voice, video, photography and social media, not to mention a greater number of devices talking to each other on our behalf.
With all of these rapidly evolving trends, and the unprecedented need for data capacity, Alcatel-Lucent has had to reposition itself to be more dynamic, agile and focused around the new technologies that will grow and support these new paradigms of communication. At the same time, I have encouraged the adoption of the spirit of entrepreneurial innovation from the start-up world to challenge ourselves to shed old modes of behavior. Start-ups are, by their nature, bold, brash and agile. Long-established technology giants are not. So it has been highly rewarding to have presided over the launch within Alcatel-Lucent of our Nuage Networks start-up, developing software-based networking technologies that have already started to be adopted by major customers, in both the telecoms and non-telecoms industries.
Clearly, it has also been pleasing to see the company respond to the challenge of meaningful transformation. Alcatel-Lucent had been through several restructuring programs before we launched The Shift Plan, so I could understand a certain degree of uncertainty from employees at a restructuring program. However, with The Shift Plan, we approached things differently: firstly, we created an industrial plan, to reposition Alcatel-Lucent as a specialist in IP, cloud and ultra-broadband access — the next-generation technologies that will transform digital communications in telecoms and in the enterprise world; secondly, we put in place a financial plan, to address the fundamental weaknesses preventing Alcatel-Lucent from being sustainably profitable; and thirdly, we have implemented a plan to reignite innovation, to rejuvenate entrepreneurial thinking and institute a start-up mentality within the company, to create a company which is agile, bold and prepared to take on the challenges to make Alcatel-Lucent a technology leader, not just a technology business.
We’ve seen all of this start to pay off. Our employees understood the need to transition from legacy technologies to the next-generation technologies our customers will ultimately have to adopt — and which many of our customers are indeed in the process of adopting. Employees also understood the difficult choices we had to make to change our shape and scale, to stop being all things to everyone, but apply our specialist expertise in technologies and growth markets where we would count.
We can now see the positive results of those choices: in the fourth quarter of 2014, we saw strong growth in those businesses around which we have repositioned Alcatel-Lucent, including a 15% increase in revenue in our IP routing business. Indeed, revenues from these next-generation technologies accounted for over 67% of total group sales for 2014 as a whole. We’re also seeing non-telecom customers accounting for a bigger share — around 15% — of our IP business, which is a satisfying reflection of the strategic choices we have made to focus in this area. All of this gives me great satisfaction to see our hard work begin paying off, as well as the strong conviction that Alcatel-Lucent is well and truly back in the game!