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Lucent Talks Raise Issue of Security (Updated)

The way the Lucent (NYSE:LUnews) buyout by Alcatel (ALA) (NYSE: ALANews; Paris: CGEP.PANews) plays out will be telling. Without an Arab company involved, it will surely not raise to the level of "sophisticated" political discourse that we saw with the "Dubai Ports" deal. The reality is this deal should raise greater concerns (especially since the port deal was a red herring), which I doubt it will.

From the New York Times, Lucent Talks Raise Issue of Security:

As merger talks between Lucent and Alcatel continue to advance, attention is turning to the role Lucent’s fast-growing work for military and intelligence agencies may play in securing government approval for the trans-Atlantic deal.

With a long history of contributing to military efforts like ballistic missile technology and submarine sonar, the famed Bell Labs unit of Lucent is widely expected to become a focal point when the deal is presented to regulators in Washington for approval.

Though the companies have said that they are discussing a "merger of equals," experts say the deal will probably be treated as an acquisition of an American company by a foreign entity because Alcatel of France is one and a half times the size of Lucent and the combined company will probably be based in Paris.

An Alcatel spokesman said yesterday that the company’s board would meet on Thursday, but declined to comment further. People close to the negotiations said the deal could be finished as early as this week, though they said a formal announcement might be pushed into the weekend.

National security concerns related to Bell Labs are among the unresolved issues being discussed by executives, these people said. Options said to be considered include completely spinning off the division, which has about 9,000 employees, or separating a unit that does classified work, using a corporate structure frequently employed in the military industry. But they said the companies hoped that none of those remedies would be necessary.

An important Alcatel relationship was ignored here: the relationship with China. Alcatel Shangahai Bell (ASB) is a substantial partnership with equally substantial backing from its near equal partner. Alcatel is the majority partner in ASB at 50% + 1 share. It is worth reading through this presentation by ASB’s Executive Vice President of Sales & Services from November 2005. ASB is particularly active and successful in Africa and elsewhere.

Additional reporting by AP (reporting in Business Week), raises basic and fundamental questions about firewalling the security business that does a lot of work with the US intelligence community. However, no reporting I’ve seen to date references the substantial partnership with China. Based on information beyond the presentation above, is successful and worthwhile. At the very least, it provides a formidable vehicle to attack the very quickly burgeoning African mobile market. (The chart to the right is the Nigerian market alone.)

The relationship between ASB and China cannot be anything but substantial and benefiting the PRC. Again in Nigeria, ASB is partnered with ZTE Corporation (another Chinese firm) for a substantial (massive?) telephony project for rural Nigeria, the National Rural Telephony Programme.

Still in Nigeria, consider Huawei and remember ASB has similar access to ExIm China and ASB is partnered with ZTE in Nigeria.

More important is the easy line of bank financing Huawei and other companies
receive. In 2004, Huawei got a $10 billion credit line from the state-owned
China Development Bank and $600 million from the Export-Import Bank of China to
fund its global expansion. That, analysts say, has helped Huawei undercut
competitors’ bids by as much as 70 percent and offer vendor-financed loans. In
April, the consulting firm MWL reports, Nigeria received $200 million in loans
from the China Development Bank to buy Huawei equipment. "Beijing sees that
Chinese high-tech [firms] are weak compared with larger Western corporations,"
Beijing consultant [Li] says, "so they want to help." Adds [Duncan Clark] of
BDA: "It’s a Wal-Mart vacuum-cleaner approach. They’re just sucking up the
market." (Newsweek – International Edition – 16 January 2006)

Is the Wall Street Journal up to date when it reports on the competition between Alcatel and Chinese hardware manufacturers Huawei and ZTE?

One key factor fueling the merger talks between France’s leading telecommunications-equipment maker and its longtime U.S. rival is a looming competitive threat: China….

Now, there is renewed urgency for a deal. Chinese upstarts such as Huawei Technologies Co. and ZTE Corp. are beginning to enter their turf with cheaper products, threatening to seize market share, take jobs and set industry standards for the huge Chinese market.

WSJ misses the deal here: ZTE and ASB are already partnering. Alcatel, through ASB, is already a player in the Chinese network and elsewhere (see Kathryn Cramer on Alcatel’s role in ChinaNet Next Carrying Network, or CN2 and Chinese censorship). Lazy journalism in the business papers or simply self-application of a firewall?

Maybe this post should have been titled "Lucent talks SHOULD raise issues of security"?

Category: Africa, China, ICT
  • Kathryn Cramer says:

    Lucent, Alcatel,

    Matt Armstrong of Mountain Runner makes an interesting point about the NYT story Lucent Talks Raise Issue of Security:An important Alcatel relationship was ignored here: the relationship with China. Alcatel Shangahai Bell (ASB) is a substantial partner…

    March 29, 2006 at 11:31 am

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