Alcatel unloads DSL modem business

Alcatel announced today it is selling its DSL modem business to another France-based company, Thomson Multimedia, choosing to focus instead on DSL network infrastructure and core technology.

Alcatel will exchange its entire DSL customer premise equipment (CPE) product line and its 210-employee R&D and business unit for 456 million euros ($416 million) in Thomson stock, bringing Alcatel’s stake in the company to 9.1 percent. Meanwhile, Alcatel will concentrate on its chipset and digital subscriber line access multiplexer (DSLAM) units, while licensing its CPE patents to Thomson royalty free.

The announcement comes after a hectic two weeks for Alcatel. It saw a prospective merger with Lucent Technologies fall through, laid off 900 employees and announced a massive corporate restructuring plan, which will shed all of Alcatel’s consumer and enterprise units over the next year. Alcatel officials said the deal with Thomson is a crucial step in the vendor’s rebirth as an infrastructure-focused vendor.

“CPE equipment is moving into the consumer markets,” said an Alcatel spokesman. “Even though we’re still selling to the carriers, we’re dealing with different divisions that have more of a consumer focus. … Since we don’t have that much consumer business background we felt it was wise to exit the business.”

Alcatel expects to finalize the deal before the end of year, after getting approval from the boards of directors of both companies, Alcatel’s unions and the European regulatory authorities.

In dumping the CPE business, Alcatel is definitely playing to its own strengths. Alcatel leads all vendors in DSLAM sales with an estimated 52 percent market share, while its CPE business falls far short of that with only a 22 percent market share, according to year 2000 statistics from industry research firm Dell’Oro.

Thomson, however, gains a significant presence in the DSL CPE equipment market, which will compliment its set-top box and cable modem broadband CPE equipment that is marketed in the US under the RCA brand.

Under the terms of the agreement, Thomson can use the Alcatel brand for three years and has royalty free access to all of Alcatel’s DSL technology to develop new modem equipment. Alcatel will sell its chipsets to Thomson, but Alcatel officials would not comment on whether Thomson would enjoy any kind of preferred customer status as a result of the deal.

Alcatel also built a backdoor into the agreement. If a carrier approached Alcatel, asking it to supply a complete end-to-end DSL solution, Alcatel can jump immediately back into the CPE business, the company spokesman said.