Lucent to Focus on Service Providers

In the face of the fast-changing and explosive telecommunications industry, Lucent Technologies is shedding some of its traditional businesses to concentrate solely on the mobile, Internet and broadband optical markets.

At Lucent's Asia -Pacific Media Day held in Hong Kong, company officials announced major changes in its business focus, including spinning off a number of its business divisions and partnerships with key vendors.

Mike Butcher, president of Lucent's international operations, told journalists that these changes are the "most profound and significant" in Lucent's history. The company, he said, is streamlining its portfolio in order to concentrate on providing solutions for service providers worldwide.

Some months ago, Lucent announced that it was spinning off its slower moving enterprise network division, which provides private branch exchange (PBX) systems, voice systems and call centers. Butcher announced that starting in October, the spin-off will be completed and the new company will be called Avaya Technologies. Before being spun off, the networking division contributed annual revenue of about $US8 billion.

Lucent has also decided to sell its power systems division. This business provides power systems for all of the company's equipment. "This was a niche market and we decided that we wanted to focus on our mainstream business. We will still acquire power systems from them as needed," said Butcher.

The company's highly profitable and fast-growing semiconductor business will also be spun off, according to Butcher. Last year, the semiconductor business posted revenues of $US4 billion and was growing at 40 percent. "By spinning off the semiconductor company, we're allowing the business to grow further, but we can also focus on providing services in the service provider space," he said.

Butcher said Lucent will now have a narrower market after shedding its other businesses. But there is tremendous growth in the service provider space, he said.

The opportunities in the service provider space are enormous, Butcher said, pointing out that there have been some $US200 billion worth of network equipment installed all over the world. In the last 100 years, some 700 million wirelines have been put in place. Lucent expects this same number to be installed in just 10 to 15 years. In the area of wireless, there are already 200 million subscribers worldwide. This is expected to balloon to 700 million in just 15 to 20 years.

Butcher said China is the fastest-growing market for wireless, with some 35 million subscribers already. This is already half of the total number in the United States.

The nature of service providers is changing all over the world and this is driving the strong growth in the industry, explained Butcher. The incumbent telephone companies no longer enjoy the monopoly they had in the past, and this affects their margins and overall business.

"There's a proliferation of phone companies because of deregulation, privatization and the effects of the world trade agreements," said Butcher. There are around 15,000 to 20,000 service providers today worldwide, he said.

Lucent also sees a great demand in the optical networking market, which is why it has decided to focus on this business. "We expect that in the next three years, trillions will be spent to build the global networks. For 1999 to 2000 alone, there will be 16 million meters of fiber that will be installed."

Providers such as Lucent are having a hard time coping with the demand for optical equipment. The company has already invested in expanding its manufacturing capabilities, but it is still not enough, he said.

The emergence of cyber carriers or application service providers also presents a huge opportunity for Lucent, he added. Today there are about 600 of these cyber carriers and the number is still growing. "There will be a lot of spending in the cyber carrier and data center space with the merging of computing and telecommunications,'' he said.

To meet this surging market, Lucent decided to narrow its business focus and simply concentrate on the service providers, said Butcher. In the service provider space, the most important segments are mobile, broadband, or the provision of bandwidth for both wireline and wireless networks, and the Internet. Optical technology will be the enabler of the movement of traffic for all these services, he said.

After the restructuring, the major divisions that will be left in Lucent will be mobile, switching, optical, internetworking systems, software and services.

Despite now having a narrower focus, Lucent will still continue to provide technology innovations through Bell Labs, Butcher said. The company is averaging five patents a day, he said. Three of the company's recently announced innovations are the optical switch, base station supporting all third-generation wireless technologies, and the Stinger Digital Subscriber Line Access Multiplexer used for voice-over-IP services.

Lucent also announced partnerships with some key vendors. Butcher said three of the major partnerships signed by Lucent involve Fujitsu Ltd. in the switching space, Oracle Corp. in the software billing market, and Sun Microsystems Inc. for the cyber carrier and data center market.

Butcher said Lucent is still looking for possible acquisitions, particularly companies that can provide innovation to Lucent. Some of the company's recent and significant acquisitions, according to Butcher, involved INS, the leading consulting and services company for service providers; Chromatis Networks Inc., the leading provider of metropolitan area network optical products; SpringTide Network Inc. for edge-of-the-network products; and Ascend Communications Inc.

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