Editor’s note: Each Tuesday, Local Tech Wire features a q-and-a interview with a tech executive. This week, Daniel Pearson interviews the man on the hot seat at Alcatel, Niel Ransom. Last month, when Niel Ransom took over as Alcatel’s worldwide chief technology officer one question immediately crossed the lips of many telecom industry observers: Why would anybody want this job at this time?
Chris Nicoll, a networking equipment analyst with Va.-based Current Analysis, says that currently there is not a lot of demand for the type of equipment that Alcatel is producing at this time. Nicoll points to Alcatel’s May 2000 acquisition of Newbridge Networks Corp., a developer of ATM technologies, as the cornerstone for its expansion into the North American metro networking market. And that deal could quite possibly the catalyst for Ransom to succeed.
Ransom and his family live near the Triangle on a sprawling ranch where telecom’s tangled chord seems to be light years away, and where it seems like hunkering down would be an attractive alternative to guiding Alcatel’s massive ship back into fertile waters. For now, Ransom is based in Raleigh, but his travel schedule sends him to all corners of the globe. Ransom talked with Local Tech Wire on his cellular telephone as he waited to board an airplane in Ontario, Canada where he had been visiting the former Newbridge Networks facility.
The telecom crash proved to be the end of the buying spree by the CLECs, which were some of the largest buyers of networking equipment, how is the industry going to get back on rack?
Obviously, this industry is still trying to recover from the good days of old. A couple of years ago, that is into 2000, the network operators were buying equipment in a frenzy and of course everyone hoped that would go on forever, but it didn’t and it couldn’t. In fact, the operators were responding to what they saw as the potential, huge demand for bandwidth in unprecedented amounts. In fact, the underlying demand has grown at about the same constant 10 percent rate for many years, and the manufacturers quickly found themselves in this equipment surplus state. Unfortunately last year, and indeed for much of this year, the operators are still burning off their surplus capacity as the underlying demand starts to eat that away.
So the industry is quite different than it was a few years ago. For one, all of the little startups are in a world of hurt. As we all knew there were too many of them and now that hard times have hit they’re finding the access to capital very tough, and indeed customers are more reluctant to use equipment from a startup for significant portions of their network because they aren’t sure they’re going to be around in a few years. So that becomes a little bit of a self-fulfilling prophecy.
With the telecom industry moving backwards toward domination by the four Baby Bells, with the OEM market also move in a similar direction toward consolidation?
Yes. No doubt there will be fewer equipment providers in a few years, and we’re quite convinced Alcatel is going to be one of those that is still around. But now what are the rest? Right now I expect that primarily within the smaller operators you’re going to see a lot of consolidation, but I wouldn’t be surprised if even among some of the bigger ones there is some consolidation that may happen. After all, we almost acquired Lucent last year. But I’ll tell you what; they’re all on the block right now. I think you’d have trouble naming one (smaller equipment manufacturer) that hasn’t been knocking on my door.
Is this the beginning of a situation where competitors are going to have to start to working together to boost sales?
Well, many competitors are working together and have continued to work together. Manufacturers work together because they need to provide an end-to-end solution. If there is a need to fill in holes it’s often useful to work with others in doing so. But even more so, strange bedfellows are starting to happen in the world of 3G. Alcatel is partnered with Fujitsu, for instance, who is one of our competitors, and yet in 3G it seems we were better working together – combining our strengths and forming a joint venture to try and get a product to the market sooner – than each going our separate ways.
As Alcatel’s new worldwide chief technology officer, how is the turbulent OEM sector forcing you to develop a new vision for the company?
Well, the way my chairman has explained it to me, if I do my job right then Alcatel will have the products the market needs in a two- to three-year timeframe. So I’m focused on what the market needs in that timeframe and doing whatever we need in Alcatel through internal development, partnerships and acquisitions, to ensure us that we’ll have those products that will make us successful within that period.
The newer products that have just hit the market (address ATM technologies). Actually, it’s been kind of interesting. There was a lot of talk a couple of years ago that somehow the ATM market has come to the end and it will be replaced by IP. But it turns out ATM had a lot more resiliency than people thought, and suddenly there are a lot of requests for proposals out for ATM equipment. The current equipment many companies have doesn’t have the capacity to handle the growth they are getting on ATM networks. And this is happening right at the time that Alcatel is introducing a next generation ATM box. It was a product that was in development in Newbridge at the time of the acquisition. It was one of the jewels we saw in the company that attracted us to Newbridge, and that product is hitting the market right at the right time. And because it’s not just ATM, it’s a combined ATM, MPLS, IP box it looks like it’s going to be a real success for us.
There has been so much talk over the last few years about VoIP becoming the industry standard for voice and data transmission, but will VoIP ever grow into that original version?
Well, it’s obvious that VoIP has not, in any way, met the huge growth that people have thought it would. But underlying, every network operator I talk to indicates that’s still their vision and that’s where they’re going to go in the long run. But right now they’re not buying just based on vision. They want to see a clear, incremental revenue stream that comes about through that technology.
Actually cost reductions don’t even sell much these days. What they’re looking for are things that can bring in new revenues. Cost reductions that cause a lot of changes to their network often turn out to be not cost-reducing at all. So they are looking for those incremental revenues that VoIP brings, and that’s their focus and concern. That’s what’s held back the market. But my take is that they still have that consistent view that VoIP is where the future is going, so I think it will eventually happen.
Considering the state of the industry and the difficult times experienced by Alcatel in recent months, what is attractive about taking over as CTO?
Actually, we are well positioned largely because of our international diversification. We were hit by the downturn but we weren’t hit nearly as hard as our competitors. We are in 130 countries, and so the downturn that was primarily happening in North America and less so elsewhere didn’t hit Alcatel nearly as much. At the same time we were able to work inside the company to reduce cost, the amount of working capital and reduce our internal debt in order to take advantage of the upturn when it happens. I think this is an exciting time to be with the company and I’m looking forward to the challenge.