Sunday, December 03, 2006

The End of an Era: Say Good-bye to Western Electric

On November 30, Alcatel and Lucent Technologies announced the completion of their merger along with a new name and corporate identity: Alcatel-Lucent. The new company will be the undisputed market leader in telecommunications equipment and solutions in almost every category. Alas, Lucent once again is the market leader, but not due to its innovation and leadership. It reached this position by selling itself to Alcatel who has built itself as a world leader in the industry through many wise acquisitions and R&D investments over the years.

Pushed as merger of equals, the new company will be led, for the most part, by Alcatel management in Paris. Although personally heartbreaking because I started my career at AT&T Bell Laboratories, it is probably for the best that Alcatel manage the new company and leverage the assets of the intellectual property contributed by Bell Labs. Lucent/AT&T Network Systems was never known for developing good managers.

Lucent Technologies grew from AT&T Network Systems that got its life after divestiture from the roots of Western Electric and Bell Labs. WECO built innovative high-quality products and managed factories like no one else as long as they were a monopoly. The problem came after divestiture when the new AT&T Network Systems emerged. All levels of management were unequipped for the new challenges of operating in a competitive marketplace that were ahead for the company. Risk taking was not encouraged. Managers that took a risk and were wrong were persecuted by their peers. Managers that avoided decisions and went with the consensus were promoted and had very successful careers. This led to the loss of leadership in digital switching, wireless, and transmission products where AT&T Network Systems was a market leader in those categories.

Hot shots and politicos rose to the top and decimated the company. Some of these managers eventually left to ruin other great engineering companies. Talented entrepreneurs and innovators left the company to take advantage of the opportunities created by the influx of V.C. money. What was left at the beginning of the millennium was an empty shell of a company that lost its edge.

Contrasting the decline, Alcatel was bent on building a company to be a global leader in telecommunications equipment and services. They formed from what was once part of AT&T: ITT. Through the years they acquired major firms like Rockwell and DSC Communications. This gave them a foothold in North America and market leadership over Lucent around the world.

So in a way Lucent has made a full circle gaining back its international arm and market leadership. Serge Tchuruk and his team will continue to lead the company with Lucent executives in mostly subordinate roles. My bet is that they will continue to leverage the great intellectual assets of Bell Labs, Rockwell, and DSC in North America. They will be a strong force in wireless, IP, mobility, and fiber optics with the knowledge of how to put it all together. Alcatel-Lucent lacks some of the software depth to provide complete triple-play and IMS solutions, but they are spending money on acquisitions and development. This ability to look forward was something that Lucent could not do very well in the last two decades.

The new company will dominate in the network equipment and services business with a growing desire to take some of Cisco's enterprise market share. This is where the next big battle will take place for Alcatel-Lucent.

So say good-bye to the Western Electric/AT&T Network Systems/Lucent Technologies/Bell Laboratories that you knew. There will never be any place like it again, but one could question the wisdom of having most of the industry's innovation in one place. What divestitures took apart, the free market put back together. Alcatel-Lucent has come a full-circle as the telecommunications leader that it once was. The only difference is that it is playing by free market rules.