Alcatel Rules Change Threatens Russo

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The idea of a France-vs.-U.S. split isn't far-fetched. Industry watchers say the integration of Alcatel and Lucent has been painfully slow, with resentment on both sides. Indeed, a telecom executive who knows the company well says he doesn't believe Alcatel-Lucent's problems lie with technology—though it has some weak spots in its product line—or a broader telecom market slowdown. Rather, he says, the troubled trans-Atlantic merger has been stymied by cultural misunderstandings and turf battles.

Alcatel-Lucent would hardly be the first U.S.-European corporate tieup to fracture along geographic lines. Remember the ill-fated Daimler Chrysler (DAI) marriage? And at least that company's former boss, Jürgen Schrempp, spoke both English and German. Russo doesn't speak French.

Mass Defections Hurt Finances

The slow integration has taken a big financial toll. Some customers, uncertain about the merged company's product portfolio, have delayed purchases or defected to competitors such as Ericsson (ERIC), Nortel Networks (NT), or Cisco Systems (CSCO). That, along with an economic downturn that has dampened overall investment in telecom equipment, has sent revenues plunging. Alcatel-Lucent's competitiveness, in turn, has suffered because it has less money to invest in research and development—which leads to the loss of still more customers.

At the same time, a bunch of top executives have left the company in recent months, including its former chief operating officer, chief financial officer, chief administrative officer, and the head of its fast-growing services business. "The finances seem to be unraveling since the departure of the CFO," says Richard Windsor, a London-based analyst with Nomura Securities.

If Russo goes, who might get her job? In late April a French online business newsletter, La Lettre A, reported the company had already approached Ben Verwaayen, the well-regarded boss of British telco BT Group (BT) who is stepping down on May 31, about replacing Russo. But a source with knowledge of the matter tells BusinessWeek that the report is wrong and that the 56-year-old Dutchman, who was a top executive at Lucent before joining BT six years ago, has no intention of taking the top job at the merged company.

One thing seems certain, though. If the company's French board members orchestrate Russo's ouster, they'll be calling the shots on her replacement. "If there is a change in management, it will be very important for the new leader to be someone the French can respect," Windsor says.

Matlack is BusinessWeek's Paris bureau chief.