Alcatel-Lucent SA (ALU) Chairman Philippe Camus said Europe needs to drop its anti-merger position and instead push telecommunications companies to share spending and expertise in research and networks.
The former head of European Aeronautic, Defence & Space Co. (EAD), who has led Alcatel-Lucent’s board since 2008, said the aerospace industry should serve as a model on how to promote cooperation, as governments look for ways to help Europe regain its lost edge in technology.
“Europe needs to do more to promote and less to repress,” Camus, 63, said in an interview at Alcatel-Lucent’s Paris headquarters. “It’s not about pouring money in, it’s about allowing and encouraging companies to adopt common standards, co-invest in research and develop products together.”
Camus joins executives from Vodafone Group Plc (VOD) and France Telecom SA in calling on regulators to allow more consolidation, as carriers slow network spending and look for ways to boost profitability by sharing costs. Alcatel-Lucent, which is trying to avoid slumping back to losses after its first annual profit in six years, would benefit from a healthier telecommunications industry as it seeks to sell more network equipment to Europe’s phone companies.
Tower of Babel
The region has fallen at least two years behind the U.S. in deploying infrastructure such as high-speed fiber and fourth- generation mobile networks, Camus said. The executive, who splits his time between France and the U.S., said he uses his 4G-enabled Samsung Electronics Co. (005930) Galaxy smartphone to download videos at ultra-high speeds in the U.S., and switches back to his Apple Inc. (AAPL:US) iPhone in France.
“The U.S. market has consolidated, while Europe has become the Tower of Babel,” Camus said. “We’re late on 4G and we’ve got no project in fiber. That’s a handicap, especially in a bad macroeconomic context.”
In a fragmented market, European governments need to help coordinate investment efforts, following the example set in the aerospace industry, Camus said. Camus was co-chief executive officer of EADS, the parent of Airbus SAS, when it was created in 2000 as Europe’s response to Chicago-based Boeing Co. (BA:US), through the merger of German, French and Spanish assets.
That attempt at pan-European consolidation was far from complete. Earlier ambitions to include Britain’s powerful defense companies in an industry-wide consolidation collapsed after British Aerospace Plc merged with GEC Marconi to form BAE Systems, spurning the Germans, and turned toward the U.S. market for business.
EADS failed several times to manage links with Thales SA (HO), France’s biggest defense company. And even after the French state gave EADS a 46 percent stake of combat-jet maker Dassault Aviation SA (AM), Dassault continues to compete head-on with EADS.
Camus said Europe needs to define and implement long-term investment plans in networks and research and development, involving carriers like Vodafone, Deutsche Telekom AG and France Telecom, and their network suppliers, including Alcatel-Lucent, Ericsson AB and Nokia Siemens Networks.
Alcatel-Lucent rose as much as 1.5 percent in Paris to 1.24 euros and was up 1.2 percent as of 9:13 a.m. while France Telecom gained 0.3 percent. Vodafone gained 0.4 percent in London and Deutsche Telekom AG climbed 0.5 percent in Frankfurt.
Several European telecommunications companies are considering combinations to rein in costs amid slowing growth and intensifying competition.
Telefonica SA (TEF) and Royal KPN NV (KPN) are weighing a merger of their German businesses, according to people familiar with the matter, a deal potentially worth $20 billion. Members of Deutsche Telekom’s supervisory board have discussed how to deepen the cooperation with France Telecom, according to a person familiar with the situation.
While some European phone-industry mergers have won approval -- including France Telecom and Deutsche Telekom combining their U.K. networks in 2010 -- a number of deals have faltered in the face of regulatory opposition.
Vodafone in February abandoned its attempt to combine its Greek unit with Wind Hellas. European regulators were concerned about creating a market with only two operators, a person said at the time. Switzerland’s regulators in 2010 rejected France Telecom’s plan to merge its Swiss unit with that of TDC A/S.
In their U.K. pact, France Telecom and Deutsche Telekom cited the potential to save more than 4 billion euros ($5 billion) in network, marketing and administrative costs by 2014. That deal, cutting the number of network operators in the country from five to four, paved the way for joint procurement projects and network sharing across all their markets.
France’s new Industry Minister, Arnaud Montebourg, discussed the idea of combining France Telecom with its German counterpart at a June 4 meeting with the French operator’s CEO Stephane Richard, Journal du Dimanche reported on June 10. In an interview yesterday, Deutsche Telekom’s head of Germany said such a combination would create little value and be difficult to manage.
“I’m not sure there are many advantages for both parties because you get to limits,” Niek Jan van Damme said in Cologne. “The management of a bigger network normally has more challenges than a smaller network.”
The European carriers’ slowing spending, coupled with competition from Asian rivals such as Huawei Technologies Co. and ZTE Corp. (763), has pressured earnings at Alcatel-Lucent and its European rivals. Last year, Alcatel-Lucent posted a profit for the first time since it was formed through the 2006 merger of Alcatel SA and Lucent Technologies. Rival Nokia Siemens is unprofitable, and competitor Nortel Networks Corp. (NRTLQ:US) has collapsed.
Any decisions about further mergers or strategic combinations in the equipment-industry should be left for the companies themselves, rather than regulators, Camus said.
“Those are complicated matters,” Camus said. “It would be up to the companies to decide, we just have to make sure the environment permits it.”
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