The Terrestrial Networking division itself offers a broad product portfolio spanning metro, multi-service nodes with ATM or IP switching, through to SDH STM-1, -4, -16, -64 add-drop multiplexers and cross-connects, with switching down to the voice-channel level. Alcatel manufactures its own DWDM systems in-house and plans shortly to release a true all-optical cross-connect product.

Commenting on Alcatel's capabilities, as compared to the competition, Tom Fuerst said, "No other company has the in-house developed product portfolio of Alcatel - we are able to approach a customer with a complete network solution."

Tom Fuerst noted, "Development work is coordinated up to a single Network and Product Strategy organisation. Product management and marketing are similarly coordinated at a global level."

This global organisation is a relatively recent phenomenon - in the past Alcatel had separate, duplicated, U.S. and European organisations performing these functions.

Regarding the group's relationship with Alcatel Optronics, in particular concerning research into components and the all-optical network, Tom Fuerst commented, "We look to Alcatel Optronics as a supplier, but not the supplier - we are not solely dependent upon them. From the perspective of Alcatel Optronics, we are a customer, however, they also sell to our competitors. We are not required to buy-in a fixed proportion of our components from our Optronics division."

Alcatel in the U.S.

Alcatel has in the past been accused of 'missing the boat' in the U.S. market, having remained too European focused. Mr Fuerst responded, "For the 2000 financial year, over 20 percent of Alcatel's sales across the board originated from the U.S. market, an increase over previous years."

"We recognise that the U.S. is the premier market and one we are continuing to work at penetrating. This is a constantly changing market, there are new competitors appearing every day. In the long-haul DWDM market, for example, barriers to entry for a new start-up are relatively low, from a technological perspective. Everyone is scrambling to build market share."

Tom Fuerst was also asked about how he saw Alcatel's historically European image affecting the company's success in the U.S.

"We have targeted a lot of advertising into the U.S. market as, historically, we were seen as a French company. When we first entered the U.S. market, in around 1991, we were perceived as a European company trying to move into that market. With the acquisition of DSC, our success with our cross-connect and SONET businesses, and developments in the market as a whole, we are at the point now where we no longer see this as an issue."

Commenting further on changes in the market, Tom Fuerst added, "In the market today carriers are not interested in whether your company has a Japanese, European, or American name - the key factors concerning carriers are: 'can you support me here'; 'what products do you have'; and 'how can you help me to evolve my network to support my end customers'."

Acquisitions strategy

Noticably Alcatel has not following an acquisition strategy in the optical sector, unlike many of its competitors. Mr Fuerst was clear on the reasons for this policy.

"Alcatel has very strong internal Research and Development organisations - we see our European Research Centre as being on a par with Bell Labs in the U.S. There is very little going on in research laboratories outside of Alcatel around the world that we are not already working on, evaluating, or at least aware of. Ultimately, we have not been acquiring companies because we feel that we are able to serve our needs and our customers by utilising our internal resources."

"There is a lot of work to be done in many areas before we reach the point where all-optical networks are possible - for example in regeneration. Within the components industry much of the development work in this field is in its infancy. At Alcatel, we are working on the fundamental technologies behind the all-optical network, but we do not currently foresee when this is going to come about. We see SONET and SDH as playing a major role in the network for many years to come, as do our customers."

"SONET and SDH offer many sophisticated functions - such as monitoring and restoration - which were developed over a number of years. Whilst these functions exist within all-optical networks today, the level of sophistication is far less. Overall levels of network reliability and availability do not meet carrier's requirements. These systems may be tried out in some areas - perhaps by operators in developing markets. I do not see them being rolled-out widely for some time."

According to Mr Fuerst, Alcatel currently offers a complete solution in the long-haul DWDM market place. Contributing to the evolution to all-optical networks, Alcatel is believed to be the first company to display an optical cross-connect product at the Supercomm trade show in 1997. The latest version, Cross Light, is due to begin customer lab trials in late 2001.

However, Mr Fuerst feels that the terminology relating to cross-connects can be a source of confusion.

"Many companies claim to offer an optical cross-connect product. However, we would generally term these broadband cross-connect products due to the fact that they use an electrical fabric and do not scale well. In contrast, Cross Light has a pure photonic switching matrix, and can scale to 512X512 ports, without substantially expanding physically or suffering from significant loss."

The Cross Light product offers a transparent photonic switching matrix with 3R regeneration on the interfaces - it provides both a UNI user interface and a network interface to ITU optics. The product integrates closely with Alcatel's 1640 long-haul WDM system.

Alcatel is evaluating Agilent Technologies' bubble technology for the first release of Cross Light alongside other MEMs vendors. Cross Light has been purposefully designed to be technology agnostic so that the company can capitalize on the latest technology available at product release time.

On the company's activities in the Terabit router space, Mr Fuerst stated that Alcatel had developed the 7770 IP router, a product that has been publicly announced and is now shipping. However, this product falls within Alcatel's Carrier Networking group and so is not a part of Mr Fuerst's portfolio.

Ultra long-haul

In the ultra long-haul (ULH) space, Alcatel offers its 1640 wavelength multiplexer product, which also addresses the long-haul market, and is continuing to develop capabilities for this sector. In the European market, the company also offers the 1686 32-channel Wavelength Multiplexer. Mr Fuerst stated that Alcatel does closely monitor this market, despite its highly specialised nature.

"We do a lot of work with carriers, modelling transmission patterns in order to see where ULH makes sense. We do not yet have a definite view on when this market will fully mature. Our background in submarine systems - and our leadership in that market - gives us a potentially strong position in the ULH market."

While the U.S. is the obvious candidate, Alcatel does not see UHL as being restricted to any particular geographical market.

"There are many factors that come into play in the ULH market - such as the geography and the traffic patterns in a country. Traffic patterns are changing constantly, especially with the development of the Internet and the deployment of hosting centres. Voice traffic patterns are easy to predict, but the rise of data traffic patterns is making prediction much more difficult."

Following on from this, Mr Fuerst was asked about carriers' approaches to billing and the currently undifferentiated nature of billing.

"We are headed towards a situation where different services are billed differently. In the case of Alcatel, as regards data traffic, we are integrating our Cross Light and DWDM system with our core router in order to enable services such as bandwidth on demand and the delivery of different grades of service. To do this we are using technologies such as GMPLS."

Metro

Designing products for metro applications involves more than merely modifying long-haul systems, according to Mr Fuerst. While a metro system could be seen as a long-haul system minus the amplifiers, there are further differences such as the requirement for the other components to offer improved performance.

A key factor for Alcatel in the use of DWDM in the metro network, is not just how much unused fibre is available in the ground, but whether the installed fibre is in the right places.

"The economics become very complicated. Metro network systems offer multi-service capabilities. It is possible to serve a business park or a building with one box, which will meet all the requirements for SONET or SDH and data services. There is also, from our experience, not always as much fibre available as might be expected in the wider metro network - for example for inter-office services."

One of Alcatel's newest products is the 1696 Metro Span. This is a DWDM-based metro network product with 10 Gigabit capabilities.

"In the metro network operators require not only the mix of services offered by SONET or SDH, but also IP, ATM and Gigabit Ethernet services. These capabilities must be supplied at low cost, in a system with a compact footprint. We support these services on our rate independent data concentrator. This product will be available in Europe in the fourth quarter of 2001 and available in the U.S. in the first half of 2002. Currently it is undergoing trials, but has not been commercially deployed."

Alcatel is unconcerned that a vast number of vendors are competing in this sector since it is a huge market. The company has estimated the metro market to be worth $24 billion globally in 2000, rising to $41 billion over the next five years, based on analysis of a number of market estimates.

Pricing

Mr Fuerst was asked for his view on the theory that demand from carriers for products giving high performance, at low prices, is stifling innovation.

"We work closely with carriers around the world, and are involved very early with carriers to ensure that our products, such as Cross Light, offer the right features and capabilities at the right price point. We believe that we are ahead of the curve here. It may sometimes be the case that start-ups come to market with overly aggressive, unsustainable, price points which erode the price in the market."

Commenting on this topic further, Mr Fuerst added, "Alcatel's broad product portfolio enables us to supply a value-added solution, rather than simply selling a box at a low price. We look to bundle together products to provide added functionality, in order to provide a solution that the customer cannot get elsewhere."

"As an example, our Core Node solution, which enables such functions as dynamic bandwidth and different Quality of Service options, would be very difficult to achieve by simply buying the lowest-cost router, cross-connect and ADM. We can supply a solution with the required functionality, managed by a single network management platform, which will offer the operator opportunities for new revenue streams. This is a win-win situation for both the operator and for Alcatel."

"However, we feel that we are price-competitive with other companies in the industry within each product category. In this market, for some product segments, there is a new competitor appearing every week. Many of these companies will not be around in a few years time."

For example, the U.S. metro networks market remains healthy and Alcatel feels able to meet this demand. For the financial year 2000, Europe remained Alcatel's dominant market, however, the U.S. and Asia-Pacific were also significant with big wins seen in China. The key, according to Mr Fuerst, is offering the right products and services at the right price.

Though having strong contacts with the press, analysts and the carriers, Mr Fuerst contended that it remains very difficult to arrive at a clear viewpoint on whether a 'bandwidth glut' is responsible for the current spending slowdown.

"We know that spending has moved from long-haul to metro networks, and this may simply be due to aggressive investment in long-haul networks over the past few years. The bottleneck has moved from the core network, with the advent of DWDM technology, to the metro and last-mile networks."

Regarding bottlenecks in the telecommunications network generally, Mr Fuerst was asked whether he saw this as a recurring theme or if it might one day be solved.

"It will always be a matter of supply and demand. We are at the beginning of the curve for demand for bandwidth in the network, with future services, such as video streaming, demand is going to increase. Bottlenecks will always exist somewhere in the network."

Commenting further he added, "Alcatel is active in other areas of the network - for example we are the world leader in DSL technologies. We are capitalising on these capabilities to remove bottlenecks in the last-mile. We are also strong in technologies such as LMDS for wireless local access."

"If one market segment dips, we still have products and market positions in other, healthy, segments. The same holds true for geographical markets. We are not currently seeing a slowdown in the Asian market for example, in fact we are experiencing an increase in this market."

Regarding Alcatel's competitors, Mr Fuerst added, "Many of our competitors perhaps have too strong a focus on a particular geographical market - often the U.S. - and do not have the resources to exploit other regions when their core market experiences a downturn, as the U.S. is currently."