Alcatel wins milestone IP transformation deal with Telstra

Jean-Charles Doineau, Research Director

Alcatel has landed its most important contract to date - a euro2.2 billion deal to transform Telstra's network in Australia. Ericsson has been awarded the CDMA migration and 3G network upgrade contracts, while Cisco Systems won the core network part of Telstra's IP transformation project. Cisco will supply its CRS-1 core switch to the Australian operator. Telstra's existing Telstra Internet Direct (TID) and Routed Data Networks (RDN) will be replaced by a unique IP core network.

This is a milestone win for Alcatel. The contract is part of Telstra's IP transformation project and covers the IP access network (IP DSLAMs and FTTH), Ethernet aggregation, and the next-generation voice network. Alcatel will sell its 5020 softswitch as part of the deal, which seals its platform's success in large countries that can capitalise on distributed softswitching. This win follows presence in Cingular in the US, T-Mobile in the US and Vimpelcom in Russia. Alcatel has also been selected as the primary contractor for network integration, which is good news considering that it was not the only player working with Telstra in this area.

On the mobile side of Telstra's operations, Ericsson has been awarded a CDMA-UMTS migration contract, as well as the implementation of the core mobile voice network components.

Telstra's strategy going forward seems to be emblematic of how behaviour is being affected by the move to IP networking. Several major transformation programmes are currently underway, spanning five-to-seven years in most cases. These programmes bundle the introduction of new IP access networks based on FTTB or FTTH with cost-reduction programmes developed in the core. And these programmes are, in most cases, developed by a single vendor with responsibility for end-to-end migration. But the main insight here is that fixed-mobile convergence is not being implemented in the core of the network - a good lesson for those who imagined that it would be simple to aggregate fixed and mobile operations into a single network architecture!

The financial effect of these deals is still to be determined, primarily because their cost is yet to be assessed. In Alcatel's case, it is uncertain how its 11,000-strong workforce dedicated to Pacific operations will be affected. The integration part of the deal is likely to be fully incremental on the top line, as should a large proportion of the equipment side (Alcatel was already deploying IP DSLAMs for Telstra). It should be noted that some of the equipment at stake will ship in far better volumes going forward - which will help Alcatel's profitability.

This deal is a good indicator of the way the industry is actually being restructured through IP transformation of networks. Alcatel is a clear winner here; it is now way ahead of the competition thanks to the SBC Lightspeed IP overlay network engagement ($1.7 billion) and this new deal with Telstra. This compensates for its limited success with BT's 21st Century Network (where Alcatel lost the access part of the deal to Huawei).

Jean-Charles is the telecoms technology leader for Ovum's telecommunications consulting team. He has extensive international consulting experience, having been involved in more than 50 projects. He is responsible for all telecoms technology-related consulting activities undertaken globally by Ovum Consulting.

Jean-Charles is also the research director for Ovum France. He is Ovum's expert on the French telecommunications market, contributing to our research and consulting on France-related topics.