Lucents Next Move: Who Wins?’

How often have you heard this story? Company A spends billions buying Company B. A few years later, A puts B on the block at fire sale prices. Now its Lucent’s turn, as the telecom giant hopes its Enterprise Professional Services group can bring in some much-needed cash.

Lucent purchased INS for $3.7 billion in 1999. On Tuesday, Lucent put a for sale sign onto its Enterprise Professional Services group, a remnant of the former INS which today accounts for some $200-300 million of Lucent’s $4 billion-plus services business. The group would be a good catch for the right buyer as it provides network consulting, design and integration services to more than half of the Fortune 100. The proposed sales follows on the heels of the Avaya spin out, and would become the next step in Lucent’s strategy to salvage its business by refocusing on the communications service provider/carrier market.

On track for a slow out recovery, Lucent is trying to make the most of a potentially good opportunity. Despite the economic slowdown, the enterprise communications services business remains lucrative; Lucent’s network consultants are among the best; and the enterprise market is doing relatively well in a down market, especially in comparison to the struggling service provider market. By announcing its intent to sell, Lucent hopes to bid up the price among potential buyers. Given Lucent’s desperate need for cash, however, the firm is likely motivated to make a quick sale.

The enterprise networking market is highly competitive. The powerhouses include IBM Global Services and the providers that already have direct access to this market via their connectivity offerings, such as AT&T Business, Verizon, and SBC. Large communications manufacturers such as Nortel have their own professional services groups; others partner with professional services firms, as Cisco has with KPMG Consulting. Still other players are pushing hard into the market, including NextiraOne (formerly Williams Communications Solutions) and ThruPoint. The viability of smaller network services firms is questionable these days, however. We’ve seen a number of quiet failures, including Netigy and GNTS (formerly Cabletron’s professional services unit).

So who’s a good buyer? We see several possibilities:

• A major telecom equipment company that, like Lucent, has "seen the services light" and is interested in beefing up its enterprise professional services capabilities. An acquisition of Lucent’s enterprise professional services unit will bring an instant customer base and a highly skilled technical staff.

• A major IT services player that wants to supplement existing IT, LAN and server services skills with superior capabilities in WAN, voice, data, and convergence.

• Other network services players looking to solidify their competitive advantage through access to Lucent’s skill set, despite overlapping customer bases.

What about Avaya? Avaya was not granted the keys to this particular services castle during the original spin off, and since has worked hard to build its own value-added services portfolio. This type of acquisition would certainly augment Avaya’s current capabilities, but with what redundancies, and at what cost?

For customers this looks like a big win. Any buyer would place a much greater focus on the enterprise customer. For Lucent, the enterprise business has always been a stepchild with minimal R&D investment, multivendor support, or attention from the sales account managers.

Finally, where would the sale leave the Lucent services business? Probably stronger and more focused, but betting entirely on one horse, the yet-to-rebound service provider market.

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