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TECHNOLOGY SYMPOSIUM 2013 – MICHEL COMBES (November 14)
Good morning everyone.
I am happy to welcome you at this Alcatel-Lucent technology symposium, because we are at a turning
point of the industry. We can see it and feel it all around us.
What was working 5 years ago for Service Providers, does not work anymore:
Voice & text services: Legacy profit pools shrink. New entrants launch alternative models.
Broadband: The value of each bit delivered has decreased, while demand has sharply increased.
Mobile: The growth cycle in new mobile users has peaked in developed countries. ARPU’s are
extremely low in developing markets.
Customer intimacy: New companies capture significant end-user attention, challenging the
existing Service Providers.
But I would argue that these challenges are the symptoms of a dramatic industry renewal.
This renewal is already on the move in North America, North East Asia and China. The US market has
established a very attractive virtuous economic cycle: 1) consumer consumption is stimulated by
proactive investment in Broadband Access; 2) the close cooperation with local and international
device/application providers create appealing content; 3) US Service Providers aggressively contribute to
the market and the services turn-around; 4) Most market players expand now booming investment into
Cloud Services. In short, a new value creation model emerges.
On the contrary, the European ecosystem has not been able to generate the same momentum. Some
first signs of change have been observed recently. But there is still a lot to be done.
So it is a great moment to be here today, reviewing what this industry turning point means for all of us.
We are also here to discuss what it means for Alcatel-Lucent and its future.
With the Shift Plan, we established for the coming 3 years the first step of the company industrial turnaround. We have re-focused our portfolio and our customer strategy. We have mapped our ambitions
and targets. Our execution engine is completely aligned to achieve the committed results.
But this is just a beginning. In the long run, the value creation for the equipment vendors will change
and new successful business models will emerge.
Today, I would like to discuss with you how Alcatel-Lucent can strive beyond the 3-year horizon.
I see eight major market trends that frame our collective future:
1. First, the Device explosion continues as the number of people and objects connected to the
network increases massively. Users will possess in the future 10 devices in average.
2. Second, the shift towards Ultra fast access accelerates, defining the competitiveness of both
companies and nations. In the next 5 years, bandwidth will increase by a factor of 100.
3. Third, the ultra-fast IP network is now an essential bridge to dynamically enable tailored service
reliability, velocity and experience for each individual user.
4. Fourth, and perhaps most importantly, new cloud services explode in numbers by billion. This
triggers new designs, combining Cloud and Network into one global nimble resource.
5. Fifth, we expect the Telcos and Cable equipment market to grow faster in the coming years,
with investment in fast Broadband access, core network and cloud infrastructure.
6. Sixth Web-scale and “Infrastructure as a Service” companies have grown dramatically, by
providing hosted services. Whereas traditional services need weeks or months to be launched,
the Cloud ones only require days or hours. They cannibalize the legacy enterprise equipment.
7. Seventh, large enterprises and public sector also invest in carrier grade networks. In the
banking industry, 1 millisecond of network delay equates to $100m in losses over a year’s time.
8. And eighth, the rules of the game dramatically changes for the vendor community, my
community. The value moves to the Cloud Network. The vendors’ relevance resides not only in a
differentiating box drop capability, but also in software and application resources sharing.
Concretely, what are the underlying transformations triggering the various trends?
We essentially see two of them.
First, network and cloud infrastructure are concretely intersecting now.
In the last year and half, we’ve seen Software Defined Networks and the associated IP / MPLS
technologies starting to provide a carrier-like IP routing within the data centers. The Data Center
becomes a shared and flexible infrastructure that dynamically allocates to each individual user, a “slice”
of its capabilities. Ultimately, the users access only one multi-tenant multi-service infrastructure within
and outside the Data Centers.
Simultaneously, a part of the Network is migrating into Cloud facilities: many network functions (such as
voice, packet or video delivery controls) are now being virtualized and ported on servers in the cloud.
This changes the economics on how networks are build and services are monetized. For example,
operators can deploy services in hours/days and roll them out swiftly across territories. They can reduce
operational costs via automation. But they may have also to re-think their IT and network set-up, redesign their OSS as well as to become themselves “Infrastructure as a service” players.
We are shifting into a new industry paradigm: Cloud and Network resources are intermingled. Value
moves from user premises to service providers’ locations. Partnerships in open sourced ecosystems
become the norm. Value results from recurrent instantiations rather than one-off transactions.
In his presentation, Basil, which is much more expert than me on these domains, will fully develop what
this turning point is and how the industry will evolve accordingly.
The second major transformation is the emergence of the Ultra-Broadband access.
All across the world (with US, North East Asia and China leading the charge), with Telcos and Cable
operators, we see an acceleration of VDSL, FTTH and LTE deployments. As a corollary, backhaul,
aggregation and optical transport are steeply growing, becoming a strategic asset for avoiding traffic
bottlenecks between access and Cloud.
The rush for bandwidth won’t stop there: the only solution is to get the Broadband Access closer to the
end-user: Fiber terminations are moving closer to the home… Macro cells split into smaller cells.
Small Cells is now getting main stream. From a voice coverage tool with Femto, it became an essential
data capacity lever. From a technology discussion, it became an operational discussion. We are involved
in many major deployments; we have set-up advanced partnerships with industry partners, with
operators, with urban infrastructure players. We are addressing the concrete problems: how to manage
small and macro cells together? What best deployment sites? What backhaul strategies?
As it is for the Cloud Network, the Ultra-Broadband access infrastructure becomes a flexible and
dynamic resource, matching the local user and data traffic needs. Ultra-Broadband will be an integrated
market, leveraging fantastic synergies between Fixed and Mobile (such as Fixed being a key backhaul for
small cells). Ultra-Broadband access networks will also become a seamless extension of the Cloud
Network with for example the virtualization of CPEs or Macro LTE RAN.
Dave and Federico will bring you during these two days to the next steps of these discussions.
At the difference of previous technology changes, these transformations affect also industry players
beyond the telecommunication industry.
The IP and WDM technologies are already recognized and deployed by Cable operators. They are now
extended to technology-centric enterprises (like utilities, government, transport) as they need the same
high reliability and quality. With the cloud shift, the IP MPLS technologies will be able to penetrate the
Data Centers and address fast growing webscale and hosting companies.
Likewise, the telcos are not anymore the only targets of fiber and LTE technologies. Cable providers are
already adopting PON. We also see increasing Government initiatives, either in FTTx, Wireless or with
Public Safety that will reshape the Broadband market in many countries.
So what are we doing at Alcatel-Lucent about these transformations?
We believe that our future depends on us being ready to lead the next market shifts.
Our culture and operational execution started to change this year as we have announced the Shift Plan.
As you know, the Shift Plan is a detailed industrial plan that focuses the company at the intersection of
key strengths and the market evolutions.
It has been a difficult journey for Alcatel-Lucent so far. Looking back, the company wasn’t culturally or
operationally ready to fully capture each and every of the market shifts I highlighted.
While we successfully led and navigated some market disruptions, we missed others, for example
Optical 10G WDM and W-CDMA.
In the last year, we have re-set our strategy and we have been able to rebound in many domains.
First in IP and Cloud Networks:
In the OPTICS domain, we are now back in the game and have a market foundation with our
winning 100G WDM and 400G WDM portfolio.
Our IP ROUTING business has successively grown with Fixed BB, mobile BB, in the edge, the
aggregation, the core and now with the Cloud. We are experts in multi-tenant, resilient, and
scalable networks. We are now establishing ourselves as the reference of excellence in SDN,
with Nuage. We have a real chance to challenge Cisco in the Service Provider market.
In the last year, we have significantly revamped our IP PLATFORM portfolio. It is now well
interlocked with our global strategy. We are seeing a broader worldwide adoption of our leading
IMS, Customer Experience and CloudBand assets. For instance, Voice over LTE becomes the next
strategic topic for LTE operators and IMS is at the core of their commercial strategy. We also
have anticipated the shift to NFV and have been working in the last two years to enable it.
Andrew will provide tomorrow full insight on the transformation in the IP Platform domain.
There are strong dependencies between WDM, IP routing and platforms, creating a new
industry space. Service Providers with intense unicast and multi-cast video traffic, such as cable
operators, are keen for IP and WDM integration, in order to switch traffic at the optical level.
We are also developing strong positions in the Ultra-Broadband domain:
I am particularly delighted to speak now about Fixed Networks. Perfect example of strategic
perseverance. The next generation of fibre technologies took time to materialize. But we
persisted... We are now experiencing a full renewal: Fixed Network is a significant contributor to
our business as the VDSL vectoring and the PON markets are accelerating.
In Wireless we had to reset the clock, but our leading efforts in LTE overlay and Small Cells are
starting to pay off. We have recently experienced a very favourable pattern of wins including
China Mobile, Telefonica, and a second phase of deployment at Sprint. Service providers are
increasingly competing to be the first to provide LTE capacity, in order to gain a competitive
advantage. To do so, they need to be unconstrained in their development and can’t afford a tie
with the legacy. Many operators (such as Telefonica Spain) now deploy LTE infrastructure in
complete overlay of 2G/3G. They are departing from an initial Single RAN approach. LTE overlay
allows choosing independently the RAN location in order to match the most aggressive
commercial plan. It also allows an unconstrained focused operation to the new roll-out. As
observe with first adopters, most mobile data traffic is or will be soon on LTE. Therefore, LTE is
the infrastructure that sets the priority.
Our aim is to succeed in VDSL, Fiber, LTE and Small Cells with a focused and persistent integrated
strategy, whereas key competitors have a partial offering. We are THE Ultra-Broadband Telco specialist.
To lead each of those transitions, we will need to insure our products are highly valued by our customers
and differentiated from our competitors. Product differentiation needs innovation and disruption. At
Alcatel-Lucent, innovation is a core part of our DNA and is a key driver of our future.
In the last year, we have implemented a tighter connection of our world-class Bell Labs organization to
our product roadmaps, in order to drive disruptive innovation into our portfolio.
We also cultivate our culture of disruption by aggressively pursuing new product ventures in incubation
hubs like California or Israel. Our aim is to nurture and grow the means to cannibalize our own legacy
businesses and set the pace in the industry changes, being SDN, NFV, CDN or Small Cells.
Finally, we will also focus on high-value technologies with the express intent of monetizing patents.
Our history and our vision tell us that we have three distinct ingredients that define the future path of
One can argue that it creates three alternative futures:
1. Alcatel-Lucent becomes a Cloud Network company expanding from our IP business.
2. Alcatel-Lucent becomes a profitable ultra-broadband telco specialist, scaling the business.
3. Alcatel-Lucent increases its innovation engine value, by strongly growing its patent revenues
I will argue that Alcatel-Lucent is more relevant than ever leveraging its Cloud Networking, UltraBroadband and Innovations strengths.
In this respect most of our competitors rarely exhibit strength in all the three dimensions. Many have
become more and more specialized in the last years.
On the contrary there are strong synergies in Alcatel-Lucent across the three dimensions:
1) Cloud Shift and Ultra-Broadband intersection: our customers trust us in both domains.
Virtualization bonds the two. Security is a common need across network and a strategic focus.
2) Ultra-Broadband and innovations intersection: vectoring, PON, Mimo, lightRadio Small Cells, and
SON are innovations from Bell Labs. More is coming.
3) Cloud Shift and innovation intersection: FPx & SROS are unique in the market. WDM 400G,
Nuage and Cloudband have been originated with Bell Labs talents. There too, more is coming.
However to seek a broader success, we need to grow with a purposeful open strategy of partnerships. It
will help us to scale the industry, to re-shape it, and to create productive ecosystems.
We have announced in the summer our partnership with Qualcomm combined with their investment in
our company. Being respectively the leaders in wireless chipsets and Small Cells, we together have the
means to foster a worldwide adoption of indoor Small Cells.
Similarly, we are designing with Orange the key operational practices and architectural models in Small
Cells and FTTx deployments.
But we will not stop there. As I have mentioned it throughout this presentation, we are engaged in an
industry turning point where the value chain is re-shaped. So you have to expect more from us redesigning our industry landscape and changing our boundaries.
So let’s recap We have re-grouped on a few strategic businesses with a tighter and more controlled portfolio. In this
respect we are already significantly simplifying the company.
Three ingredients form our company DNA. They are:
• A leading edge insight on how to design and evolve the ultra broadband telcos networks.
• One of the top innovative company in its industry
• A fast expansion with all-IP in the Cloud
We believe that we need all these ingredients to be successful moving forward.
But, we also acknowledge a major change – the cloud shift now defines our future.
In other words, we have selected one direction to evolve Alcatel-Lucent, consistent with placing IP at the
center of our company.
So let’s come back to our initial question: what path should Alcatel-Lucent take for the next five years?
We embrace the market shifts and re-invent ourselves in a completely re-shaped market.
However, the ticket to win for us is the execution of the Shift Plan. It makes us culturally and
operationally ready to tackle the market shifts and gives us the right to define our future.