Today Alcatel is a different company. Battered by the events of that black September, Tchuruk decided that the answer was not to run from America, but to push his advance even harder. In five years at the helm, Tchuruk had reshaped a bewildering conglomerate making everything from phones to fast trains into something that more closely resembled a real telecom company. Now he would attempt a more radical makeover. Leaping into the Silicon Valley gold rush, Alcatel has purchased seven high-tech telecom companies over the last 18 months for more than $16 billion–including a $7.1 billion deal for Newbridge of Canada earlier this month. Along the way, Alcatel executives have been absorbing the high-speed Valley culture of nouveau billionaires, supercolliding egos and stockholding secretaries. As a result of the buying spree, many Wall Street analysts now rate Alcatel as the European giant most likely to survive the global consolidation among telecom-equipment makers. It’s not a point they press too loudly in Paris, but some Alcatel executives now say their growing U.S. presence will lead inevitably to the “Americanization of Alcatel” and its corporate culture. “It’s a simple matter of survival,” says Olivier Houssin, Alcatel executive vice president. “Internet innovation flows from the U.S. to Europe, so to be on top of Europe three, four years from now, we have to be in the U.S. today. That forces a change in culture as our center of gravity shifts to the U.S., because America and particularly California… well, it’s a different world.”
Alcatel isn’t the only big European company feeling that gravitational tug. Competition in industries from autos to banking is now global. And Europeans understand that if they can’t meet the world standard, they won’t even be able to defend their home markets. In most businesses, that standard is set in America. That’s why Deutsche Telekom (to name just one example) was pondering a $100 billion acquisition in the States just last week. In Alcatel’s main business of telecom equipment, the pace is set by Cisco Systems, which has grown in just 15 years from a San Jose, Calif., data-networking start-up to America’s second largest corporation by market capitalization, and which swallows up companies at the rate of almost one a month. The Cisco juggernaut has spawned a “buy or die” mentality that started to draw in European telecom companies in a big way only last year. By early this month, Alcatel was dueling with both Siemens of Germany and Ericsson of Sweden when it won the right to buy Newbridge for $7.1 billion. “We bump into each other all over the place,” says Houssin. “We’re all after the same U.S. technologies, the same companies, the same investment banks.”
Established European firms are hard pressed to match Cisco’s flair for picking Silicon Valley start-ups. Cisco has created a kind of assembly line for absorbing and indoctrinating new acquisitions in the “Cisco way.” “It is really amazing,” says technology analyst and industry veteran Maribel Lopez. “They come in on the first day with Cisco playbooks, signs, mousepads, everything, and say, ‘You’re Cisco now. You’re going to rule the world’.”
That, of course, is just what the Europeans fear. By early 1998 Cisco, restlessly seeking new markets, was moving in on Alcatel’s turf. “Cisco is an expansionist power like America in the 19th century,” says Doug Hill, a top Alcatel marketing executive. “But what happens when it runs out of new frontiers to conquer?” Now Alcatel is no longer content to buy Cisco hardware–and fuel its expansion. Instead, it is scrambling to buy companies with the technologies it needs to compete. Melding these parts into a smoothly functioning whole is the job of chief operating officer Krish Prabhu, an Indian-American who is based in Dallas–and described by Alcatel’s New York publicist as the “new American face” of the company. “In this business, we’re all on a collision course with Cisco,” says Prabhu.
Alcatel has been in flux for more than a decade. Privatized in 1987, the former monopoly had briefly swelled into the world’s largest telecom manufacturer in early 1990s, only to founder. A turnaround specialist, Tchuruk arrived in 1995 and started cutting jobs, spinning off peripheral interests–including a winery and newspapers–and winning plaudits. By 1997 Morgan Stanley was praising Alcatel as the “Lucent of Europe,” a telecom phoenix risen from the ashes of monopoly.
But there were always skeptics. If Alcatel had new direction, why was it still boasting of a manufacturing “trimaran” in telecoms, trains and nuclear power? How did it miss out on the 1990s mobile-phone boom, the rise of the Internet? A Goldman Sachs report compared Alcatel to the deluded potentate in the “Emperor’s New Clothes,” and it was this view that poured out in the aftermath of the DSC deal. “I resented it as something unfair,” says Tchuruk. “But I also had to ask, what went wrong?”
Alcatel’s crash was front-page news in France. Some saw it as a sign that the financial contagion roiling emerging markets in late 1998 and early 1999 was hitting Europe. By July of last year, conservative President Jacques Chirac was calling in his Bastille Day address for France to “regain control of its big companies” from fickle American investors, particularly the California pension funds that had dumped Alcatel. Tchuruk disagreed. “I don’t care whether the shareholders are French or American or whatever else,” says Tchuruk. “Whether we like it or not, the value of any large international company is determined by American opinion makers.”
True, a lot of Frenchmen won’t like it. With the U.S. expansion, top Alcatel executives are now starting to enforce a five-year-old declaration of English as the official company language. “I get a lot of letters from people asking why I was using English to promote the company,” says Tchuruk. “But it’s the business language; whether you like it or not, that’s the way it is.” Still, it’s one thing to demand that Alcatel’s 120,000 employees in 130 countries speak English, another to listen. “It can be a horrible brand of English,” says Patrick Liot, who heads the new California division for U.S. acquisitions, “but we have to have one language.” Liot says he now bounces e-mail from Alcatel offices in Europe if they are not written in English, with a note saying, “I’m not here to be your translator.”
Alcatel is now a far more “American” company. It has opened up its secretive finances and replaced leisurely annual reports for the Paris Bourse with the quarterly reports Wall Street demands. This month it is introducing what it claims will be Europe’s best stock-option plan–a motivational tool lifted straight from Silicon Valley. Recent acquisitions have more than doubled U.S. sales to $5 billion, making Alcatel the largest non-U.S. telecom group in the American market. American financial analysts once ridiculed Alcatel for living fat off inflated contracts with European government phone monopolies, but this year, Alcatel says, its biggest clients will be nimble American “baby bells.”
Tchuruk is also forcing proud Alcatel engineers to accept the idea of buying California technology. He calls this a “huge transformation” for a company that for a century developed every product “full stop, 100 percent” in house. Like many in the telecom game, Alcatel believes the future is in networks that carry both telephone calls and computer data over the same lines, creating a zillion new services that effectively “merge” the phone and computer: e-mail logs that also list voice messages, mobile phones that can tap into e-mail, and so on. “This market is going to explode,” replacing up to half of existing phone and computer networks within four years, predicts Houssin. To come out on top, Alcatel needed to quickly close on Cisco’s lead in data technology. “If we don’t make it in the U.S., we end up as just a regional telecoms player,” says Liot. “If that happened, I think Alcatel would just fold.”
The logic of the strategy was undeniable. But the execution of it would not be easy. After DSC, Tchuruk ordered his executives to tread carefully, so as not to “smother the entrepreneurial spirit” of new acquisitions. They were already in talks with Bernard Daines, a Silicon Valley visionary who had founded a company called Packet Engines in his basement in Spokane, Washington. Daines, the inventor of a superfast data network, the Gigabit Ethernet, says he was surprised by Alcatel’s generous terms: they would leave him in complete control, double his staff to 500 and build a new $15 million headquarters. “We are acquiring a lot of very aggressive, very rich people, because we are making them rich by buying them,” says Houssin, who figures Alcatel is paying about $7 million to $8 million per engineer in its acquisitions. “So we have to keep them happy, because if we lose them, we’ve bought nothing.”
By that measure, Packet Engines was another debacle. The $315 million deal quickly unraveled. Daines says Alcatel started to break its promises within days. “In a French company, if you lose your job after 40, you’re dead. The executives are all about protecting their perks, their turf,” says Daines. “We had people flying in from Alcatel offices all over the world–Paris, Antwerp, Dallas–up to 15 people a day, all telling us what do. Six new ‘visions’ in three weeks. It was a mess.”
It got even messier in March. That was when Alcatel cut its next big deal, laying out $2 billion for the Xylan Corp., a California competitor of Packet Engines, and announced that Xylan’s billionaire CEO Steve Kim would head a consolidated U.S. networking operation–including Packet Engines. Daines was furious. He claims Kim “destroyed” Packet by abruptly cutting staff and product lines, and is now suing Alcatel, vowing “to teach Paris that they can’t just come in and run roughshod over people.”
By last summer Alcatel had created a new “Internet-working division” as a kind of umbrella for new U.S. acquisitions. It was based at the old Xylan headquarters in sleepy Calabasas, outside Los Angeles, and run by Liot, whom Prabhu brought in for his “human qualities.” Employee turnover at U.S. acquisitions is now running at about average for Silicon valley–18 to 20 percent per year. “What happened in the case of Packet Engines was that we took too long to focus–for start-up entrepreneurs, days are a long time. In a big company we’re used to thinking in weeks or months, but we learned a lot from that,” says Tchuruk. “Now Steve Kim–everyone has their methods. In the end, I’m quite happy. The crisis is over.”
The offensive into America is not. At times, the French and California cultures still collide in Calabasas, says Prabhu. “We’ve had budget meetings where Americans get up and tell executives from Paris, ‘You’re bulls–t, you don’t know what you’re talking about.’ That would never happen in Europe, and the Paris guys seethe in their seats,” says Prabhu. “Later over dinner, I tell them, these are Americans, they treat their parents that way. Don’t take it personal.”
By most accounts, Alcatel is finding its stride in the United States. “They had a rough start. It was out of control. But they deserve credit for the way they handled it, particularly at a time when they were also restructuring in Paris. It must have been a madhouse,” says Mark Fabbi, an analyst at the Gartner Group, a U.S. technology-research firm. Gartner recently removed Alcatel from a list of “sleeping giants” in the telecom industry, but Fabbi notes that Alcatel “still has one big problem: no one in the U.S. knows who they are.”
Tchuruk says it’s not surprising that a company of engineers so recently into everything from wine to satellites would have an identity problem. The new rule, he says, is, “don’t talk technical to the customer.” The job of building Alcatel’s image in America falls in part to marketer Doug Hill, a quintessential Californian who works out of Calabasas. A vegetarian and former alternative-community resident who became a multimillionaire in the Xylan IPO, he ponders the problem at a big-game restaurant serving buffalo and ostrich in the Calabasas Hills. Hill, his hair disheveled from a ride in his Porsche convertible, says the French still love both complexity and consensus–passions illustrated by an Alcatel Web site written in thick jargon by what appears to have been a team of engineers. “Has anyone tried to describe Alcatel’s corporate structure?” he asks. “No one understands it, but it seems to work. Alcatel is a dweeb company. That’s why it’s compatible with Silicon Valley, which is still run by dweebs.”
It’s still not clear how Alcatel can withstand a rival like Cisco, which has so much more money and marketing momentum. Tchuruk may have signaled a shift in strategy last October, when he started describing Alcatel as a “software company.” A month earlier Alcatel announced its first purchase of a software company, the Genesys Corp., founded in San Francisco by Russian emigres. Cofounder and chief technology officer Alec Miloslavsky sees this smooth French-Russian alliance (“You know, the first eight pages of ‘War and Peace’ are in French”) as the seed of a software giant that could transform the networking hardware of rivals like Cisco into cheap commodities. “That’s how you make a 600-pound gorilla in this business,” says Miloslavsky. “You change the terms of the fight.”
Alcatel execs are more cautious. Against a rival like Cisco, says Prabhu, “even at Alcatel, big as we are, we have to choose our fights carefully.” Alcatel’s next purchase, Newbridge, will put it in direct competition with Cisco hardware, and continue its gradual rehabilitation on Wall Street. As it gains new business in the United States, Alcatel’s stock price has climbed from a low of $18 back in September 1998 to $48 at the close of business last week. “We’re now No. 4 in the U.S.,” says Tchuruk. “We’re creeping up.” The American beachhead is established; can it now be held?
title: “Buying American” ShowToc: true date: “2023-01-03” author: “Christina Bailey”
After the first gulf war, many foreign firms lost out to American counterparts, who took the lion’s share of reconstruction contracts in Kuwait. This time the job is expected to be much larger and more lucrative, worth upwards of $100 billion. In Europe, politicians who opposed going to war are doubly angry to be left out of postwar reconstruction; British Eurocrat Chris Patten recently called the Buy American aspects of the Bush plan “exceptionally maladroit.” Still hoping to land a piece of the action, most European businesses are much less outspoken, but in private they are quick to challenge the prospect of an American monopoly.
European business leaders point out that they have sent hundreds of firms to war zones all over the world, and even to the United States. The British construction firm AMEC helped rebuild energy-supply lines in Bosnia and Kosovo, and worked on the Pentagon and the World Trade Center site after 9-11. From France, Alcatel rebuilt phone networks in Kosovo, and Technip-Coflexip has partnered with both Halliburton and Bechtel on energy projects in the Middle East. Siemens of Germany is currently rebuilding Afghanistan’s decrepit fixed-line phone system, and clearly has the experience to do the same in Baghdad.
Europeans say Americans can hardly claim special knowledge of Iraq, either. Many European firms have done recent work in Iraq under the United Nations’ Oil-for-Food Program. Adams says more than 50 BCCB members have experience in Iraq. French construction firms like Bouyges nabbed scores of Iraqi building contracts through the ’70s and ’80s. Alcatel and Siemens helped build Iraqi power and communications grids, some of which are built to European standards. Claude Valluy, who heads Middle East exports for the French electrical-equipment company Sicamex, says the standard for electrical –wires that power most Iraqi neighborhoods is French, and should remain so, because the French system is safer and more reliable. “Having an American company come in to replace the network would be completely stupid,” he says.
That, of course, is a very French view. But the early U.S. bidding process was closed even to its chief war ally, the British, which came as something of a shock to all of Europe. British Trade Secretary Patricia Hewitt complained to the United States Agency for International Development in Washington; since then, several Brit- ish trade officials have been seconded to USAID, and the way is open for British firms to bid for subcontract work. One international firm based in Britain, Crown Agents, has won a subcontract to help manage the flow of goods into Iraq. Non-Brits are even more concerned. Playing off those who call British Prime Minister Tony Blair “Bush’s poodle,” the German NEWSWEEKly Stern asked last week: “If not even the poodles get their reward, who’s going to listen to the weasels?”
Most Europeans seem to expect that Washington will deny contracts to foes of the war, but it’s not that simple. USAID head Andrew Natsios has taken pains to point out that officially, any foreign firm can bid for subcontract work. And the U.S. Defense Department has recommended that GSM, the current mobile technology standard in both Europe and the Middle East, be used in postwar Iraq, too. Julian Watson, a telecom analyst at the World Markets Research Center in London, says this could benefit the likes of Nokia of Finland and Ericsson of Sweden (countries that have been antiwar).
Importantly, too, the biggest job in postwar Iraq will be rebuilding the oil industry. It is now standard practice for oil firms to form multinational consortiums to share the expense and risk of this kind of megaproject. Arguably, the firm best placed to anchor such an effort in Iraq is Total- FinaElf of France, which in the 1990s negotiated deals to develop the massive Iraqi oilfields of Majnoun and Bin Umar. While no paperwork was ever signed, the company is a year ahead of others on the research for rebuilding those fields, analysts say. TotalFinaElf refuses to speculate on the future of the contracts. But for the United States, it will be of paramount importance to rebuild quickly and repair relations with allies after this unpopular war. In this case at least, American interests might well be served best by–horrors!–the French.
With Tracy McNicoll in Paris and Stefan Theil in Berlin
