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Alcatel-Lucent and HP partner to build strength as IT and Telecom consolidates
By: Maribel D. Lopez
Date: July 2, 2009
On June 24th 2009, Alcatel-Lucent (ALU) and Hewlett Packard (HP) announced a 10-year global strategic alliance. While the companies have not signed a definitive agreement, the vendors offered an outline of what the partnership would entail. The agreement has two parts. First, Alcatel-Lucent will outsource a majority of its IT infrastructure, including data center, network and Information Systems management to HP. ALU will transfer 1,000 jobs to HP as part of the deal.
The second part of the agreement will define a joint go-to-market program in the service provider and enterprise markets. In the service provider arena, the alliance will offer end-to-end business and infrastructure transformation as well as infrastructure outsourcing. In the enterprise space, Alcatel-Lucent will combine products in areas such as IP telephony, unified communications, mobility, security and contact centers with HP’s IT solutions. The joint product set will be offered through HP resellers and as managed services. The companies listed energy, utilities, healthcare and the public sector as key enterprise verticals. On the service provider side, the alliance will provide a more comprehensive outsourcing portfolio, which will allow service providers to focus their limited resources on innovation. ALU and HP strive to build a portfolio that spans the network, IT and apps In the past year, both ALU and HP have overhauled their corporate strategy and vision. The alliance provides benefits and opportunities for both companies. The partnership allows Alcatel-Lucent to shed expense by transferring employees to HP, leveraging HP’s supply chain efficiencies and increasing the speed of its IT infrastructure upgrade. The partnership will allow HP to couple its data center offerings, service delivery and digital media services with ALU’s carrier grade networking as well as add support in telecom IT areas. The alliance:

• Provides proof points of ALU’s strategy to accelerate growth. Alcatel-Lucent’s CEO, Ben Verwaayen, discussed how the competitive landscape for operators and vendors are changing at an industry analyst conference in June. At this time, he stated that ALU would be increasing investment in some areas, reducing it in others and partnering where necessary. The alliance with HP provides a concrete example of areas where ALU will reduce spending and partner for complimentary product lines. For example, in the service provider outsourcing market, there are opportunities for HP to deliver significant cost and architecture improvements to ALU.

• Strengthens HP’s arsenal for its war on Cisco in the service provider market. Over the past year, HP has continued to build a foundation to compete against Cisco. In January, HP announced a multi-vendor alliance called ProCurve ONE that has 11 technology partners including large industry leading firms such as Microsoft, Avaya, McAfee, F5 and Riverbed, as well as six specialized technology vendors – Aastra, AirTight Networks, Ekahau, InMon, .vantronix and VBrick. It followed this with a partnership with Microsoft in the unified communications arena in May. The partnership with ALU builds on the strength of the CME group to create a more comprehensive service provider solution.

• Highlights the convergence of IT and Telecom. Large customers, such as service providers, are already consolidating the IT and Telecom departments. These newly consolidated groups are now looking for strategic vendors that can offer capabilities that span from IT systems to the data center. Vendors like Cisco have responded by augmenting networks with applications services like collaboration and infrastructure services such as data centers. This announcement gives both companies the opportunity to build a one-stop shop for IT and Telecom purchasing.

A good strategic move on the service provider side but execution will be hard
Lopez Research believes the alliance makes sense for Alcatel-Lucent and HP as the two companies seek to position themselves as a leader in the convergence of the IT and telecom market. Both firms have global presence and telecom expertise. This partnership could provide a more comprehensive technology portfolio for either vendor’s customers. For example ALU can add its communications services to HP blades while HP can offer systems integration service and data center infrastructure to ALU. HP also has strong expertise in the telecom arena with rich communications solutions, billing and NGOSS. While the alliance has the potential to strengthen the brands, there are numerous challenges. For example:

• Partnerships are problematic. Partnerships are not acquisitions, which make it difficult for the companies to build a cohesive strategy that would present a unified front against a strong multi-market competitor such as Cisco. Also, the two companies have partnered together in the past but with only moderate success.

• HP’s prolific partnering could dilute efforts. In less than 6 months, HP announced partnerships with 13 companies. HP can’t dedicate the same resources to all partners. The challenge for ALU is grabbing enough resources to make its partnership effective.
• Product overlap will create confusion for partners and sales teams. In addition to the issue of partnerships competing for HP’s resources, certain partnerships and acquisitions will also compete directly with the alliance. ProCurve’s networking group competes against ALU in the networking business. HP’s CME portfolio also has areas of overlap in the SDP and Next Generation OSS space. Meanwhile, HP’s recently announced Microsoft partnership provides an alternative to ALU’s unified communications solutions. But while these solutions may compete, the solutions are not exact replicas and therefore provide the customers with choice. The challenge for the alliance will be allowing the sales teams to pick the best solution for the customer’s needs.

To be successful moving forward, ALU and HP must:

• Rationalize the incentives to the channel. Its not clear that the current 100 dedicated sales resources will be enough to help drive change within ALU and HP as well as in the channel. HP will need to work with ALU to define programs that compensate enterprise channel partners for selling either ProCurve or ALU networking solutions. But in addition to compensation, the companies need to provide guidelines on how to pitch the various solutions. In bids with service providers, they will need to define who leads the engagement; what discount rates will be used and how they will address potentially competing solutions.
• Advance application enablement by combining resources. Alcatel-Lucent should add HP’s IT infrastructure into its Application Enablement strategy which helps service providers expose their network capabilities in a managed and controlled way to application developers. For example, the alliance could help service providers build a Platform as a Service offering (similar to what Google offers with Apps Engine) that allows an apps creator to test the operation and scalability of a new app.
• Build multivendor unified computing and digital media solutions. The alliance has two potential benefits over vendors like Avaya and Cisco. First, it has a robust services portfolio with the combination of ALUs services group, HP’s EDS arm, and HP’s CME SW related professional services group. Secondly, it has the ability to design multivendor offerings that meet an enterprise customer’s need to leverage existing investments while moving to IP. On the enterprise side, HP should build solutions that deeply integrate ALU and Microsoft U.C. technology — or even Avaya — through the ProCurve One partnership. On the service provider side, HP and ALU should capitalize on the move to video and next generation web 2.0 services. It can take on Cisco’s network as a platform strategy by linking network features like Quality of Service and security from either party. The alliance should also focus on the location services in both the enterprise and service provider domains.