DSL Prime Feature Article:
Showdown Between AT&T and Alcatel

Alcatel will probably never forgive me for this issue, but I can't ignore a major story about the largest DSLAM vendor in the world.

by Dave Burstein of DSL Prime and Future of TV and the Web Video Summit [March 21, 2007]

Alcatel and AT&T, continued
Alcatel will probably never forgive me for this issue, but I can't ignore a major story about the largest DSLAM vendor in the world.

Alcatel's Incredibly Tough Choices
Understanding why Tchuruk made short term decisions and cut corners
Serge Tchuruk and team kept Alcatel alive while Lucent, Siemens, and dozens of others failed. Survival wasn't easy. The company could have died if they didn't hit targets. It wasn't policy to anger AT&T, but they needed the $100 million contract for network management software. Previously, Alcatel had widely collaborated on developing the related spectrum management. Everyone expects salesmen to over promise, but they went far beyond the usual puffery because they couldn't afford not to win the contract in 2004. In internet days, customers were sure to know what the price was around the world, but in the short run paid Alcatel what they demanded to avoid operational changes.

Making tough decisions in 2004 may have been the only way to still be here in 2007. Not many are left to cast stones. Siemens spent $400 million on bribes (I had a subscriber there arrested), Nortel's CEO and others are facing charges, Joe Nacchio is on trial facing a possible life term, and Broadcom has admitted over $2 billion in options fraud.

Much of this is now history, not news. One gamble they may have lost, however, is Pat Russo's most crucial customer, AT&T. The company just publicly repudiated Alcatel's most important product line, broadband TV based on Microsoft. Alcatel and Microsoft are currently left out of the AT&T led new "Open IPTV" consortium. Siemens and Ericsson are in. Open IPTV wants new standards within months and is not accepting new members for now, effectively excluding Alcatel, Microsoft, and also Cisco from the current process. Microsoft IPTV probably will be effectively excluded from contracts based on the new standard, based on my understanding of how the likely standards will clash with the design of the Microsoft middleware.

I have absolutely no confirmation, formal or informal, that AT&T's Alcatel/Microsoft deployment plans have actually changed. AT&T's Jason Hillery provided an official comment "AT&T's participation in the forum has no impact on the company's U-verse strategy or platform." Even if the standards come together as planned in 2007, I doubt anyone can ship products in AT&T style volumes until 2009. It's possible CTO John Stankey is doing this all as a feint to force down Alcatel prices, ready to drop the whole thing if they cut a deal. If Alcatel comes back with a 40 percent price drop, Stankey might let bygones be bygones very quickly. Someone at AT&T just leaked everything about the Yahoo deal to the Wall Street Journal, including a threat to switch to Google. Yahoo's stock went down $2 billion—more than they would net from AT&T in decades. This could just be some very public negotiating.

Alcatel/AT&T: Three Years Battling
They made nice in public, but …
Everyone in the industry has known the conflict between AT&T and Alcatel/Microsoft has been intense. Alcatel's tough moves included:

Alcatel in 2004 promised the system would be ready to market in 9 months, while other bidders would take at least two years. It is now 2007, and many features are not yet working. SBC was told performance would be 30 Mbps at 5,000 and 6,000 feet, per SBC Labs lead Gene Edmon in 2005 in Telephony. in 2006 they were only getting 20 to 25 consistent megabits at 3.000 feet, per Randall. U-verse is currently turning away everyone over 2500 feet, one-third of prospective customers, per Bear Stearns.

By 2006, comments from SBC were so angry the phone lines from San Antonio to Seattle nearly overheated. Microsoft had used AT&T's confident support to build an almost unstoppable position in IPTV in both North America and Europe, but wasn't close to the promised 2005 delivery.

Alcatel gear did not support AT&T's network management tools although the chips inside were able to do so, and Alcatel tried to force them to switch to Alcatel's management tools at much higher costs. Alcatel heavily fought an AT&T standards proposal, including putting pressure on other vendors to vote against the open standards backed by several telcos.

I believe Ericsson/Entrisphere recently won a crucial AT&T Fiber to the home contract away from Alcatel. Nikos Theodosopoulos reports Adtran won a DSLAM contract.

Alcatel's prices to AT&T were considerably higher than they charged other customers for at least some essentially similar equipment.

Meanwhile, Alcatel raised doubts about their support for Microsoft IPTV by suing Microsoft and suggesting they would shift support to the Lucent/Telefonica alternative. They had already stranded Chunghwa on the early Alcatel TV software, and AT&T has to be worrying about the future. During the course of developing Lightspeed, Alcatel angered AT&T by firing many of their most experienced North American engineers and replacing them with far less experienced staffers abroad.

Jim Brady of Microsoft sent over this diplomatic comment: "Microsoft is not a member of the Open IPTV Forum. Microsoft TV supports open standards. We actively participate in several standards bodies associated with IPTV—including ATIS, DVB, ITU, DLNA, CEA, HGI, TISPAN, W3C, and OASIS—and are on a path to define open standards related to IP Multimedia Subsystem (IMS) and Digital Living Network Alliance (DLNA). Microsoft's IPTV solution is an open and extensible platform built on open standards, designed to enable service providers to build and deliver next-generation TV services using solutions from a wide variety of vendors of their choosing-from chip sets and set-top boxes, to encoding systems, servers, OSS/BSS systems, content providers, application developers and more. For years Microsoft has played a leading role in advancing the IPTV industry by establishing partnerships with dozens of the world's leading technology companies and service providers, and we are committed to continuing to work closely with these organizations to support our customers' digital TV deployments and enable IPTV to reach its full potential in the marketplace."

Jason Hillery of AT&T writes this, " I wanted to make sure it was clear from our earlier discussion that AT&T's participation in the forum has no impact on the company's U-verse strategy or platform. With our U-verse portfolio, AT&T is a leader in development and deployment of IPTV technology. AT&T also is a leader in research and development of open standards for a range of communications and entertainment services. Our participation in the forum enables us to ensure that we remain at the forefront of development of new, open standards for IPTV delivery as they are developed."

Mary Lou Ambrus of Alcatel-Lucent writes "The Open IPTV Forum is a standards body. There are many open standards bodies such as this. In terms of our work with AT&T, it is progressing. Deployments have begun and we plan to continue working with our customer to meet their aggressive IPTV goals. I would also point out that our solution is based fully on a set of open standards, from our IP routers and switches, to our broadband access products, and our optical networks."

Thanks for Mary Lou, Jim and Jason for working with me on a tight deadline.

Before the news broke, DSL Prime was set to open "AA, the Anonymous Alcateler, is very, very scared he's going to be fired. AA earned respect for hard work for decades, including literally years spent on airplanes and hotels. This "composite character" began to fear over a year ago when Serge Tchuruk told Wall Street he would fire many North Americans after they had resolved the problems at a major customer. I took that to meant heads would roll when Lightspeed was delivered and AT&T satisfied. Lightspeed doesn't quite work yet, but is on track to deploy widely at AT&T late in 2007.

The Lucent deal and subsequent problems have raised the cutback total to 12,500. Some of those will find posts quickly. Others will discover just how cruel the U.S. is to older workers, and may never again find a decent job. In France, Prime Minister Dominique de Villepin intervened directly, and Alcatel has promised there will be no compulsory layoffs, despite a cut in total jobs. Chuck Schumer and other U.S. politicians who pushed through the Lucent merger owe thousands of Alcatel/Lucent employees pressure on Russo to do the same over here, but I'm sure will ignore the issue.

Copyright 2007 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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