After all of its refocusing efforts and restructurings, as well as its technical, commercial and financial development, Alcatel Alsthom had become a major world player in the years 1992-1994.

Its sales figures totalled approximately 160 billion francs, close to 70% of which came from Alcatel (50% from telecommunications and 20% from cables), 26% from energy (Cegelec 9% and Alsthom 17%, which included, in light of the capital structure, only half of its actual sales, which exceeded 50 billion francs) and 4% from services.

The group dedicated toward its development each year over 6 billion francs of capital expenditures and carried out 15 billion francs worth of research, for which it spent 10 billion francs out of its own resources, the difference being for research made at the request and expense of customers. The capital expenditures were made by the various units in approximate proportion to their contribution to sales. Research expenditures, on the other hand, went more than 90% for the benefit of Alcatel, principally in telecommunications, and much less in cables. That’s how, on average, even though research represented nearly 10% of the group’s sales, the ratio could be more than double of that for certain sectors. Indeed, during all these years Alcatel was confronted with enormous technological changes at a time when, as will be seen, the markets were also radically evolving.

I have neither the intention nor the ability to set forth all of the developments (even revolutions) that occurred in telecommunications during the last two decades. However, the major points must be laid out in order for the reader to understand the challenges that Alcatel had to overcome.

Just 20 years ago all telecommunications were analog—that is, voice was transformed by a microphone into an "analog" electrical signal and then was transmitted by continuous circuit to the speaker of the receiver which would restore it for the recipient. Subsequent technologies, progressively more complex, enabled a number of individual signals to be multiplexed and then to be transmitted simultaneously; but at each “switching” point of the network it was necessary to demultiplex the aggregate signal in order to send each original signal to its proper destination.

The digitalization of signals, rendered more economical by the incredible development of integrated circuits, would revolutionize telecommunications networks

Switching was the first area to convert to digital and Alcatel CIT, working closely with the French PTT, was a pioneer in the area in the 1970’s. At the time of Alcatel’s creation in 1987, even though switching in the French network was largely digital, that was not the case in other countries. Conversion to digital in other regions constituted a huge market for Alcatel, particularly when combined with the increased demand that was developing at the time in telecommunications. In 1993, for example, Alcatel installed more than 16 million digital switching lines throughout the world. Transmission also became digital for the transportation segment. However, the segment linking the customer to the first multiplexing station (the last several hundred yards or miles) wasn't yet digital, except for special users. Digitalizing in the transmission field was largely facilitated by the perfection of optical fiber transmission.

While transmitting voice over telecommunications networks was becoming largely digital, a new area of demand appeared for data (digital in essence), later for fixed images, and finally, for moving images. The most effective means to simultaneously transmit voice, data, and images were, therefore, sought. The flow of information to be transmitted increased by a factor of a thousand, which led to the parallel development of new technologies.

In the context of the traditional structure of telecommunications networks, Alcatel strived to be in the forefront with respect to research and technological development—for example, for broadband switching (norm ATM) or for synchronous transmission and ADSL technology for subscriber lines. The latter technology, developed after 1992, would meet with great success several years later. It enabled high level output (up to 6 Mb’s in lieu of the standard 28.8 Kb’s in addition to telephonic voice transmission) on ordinary subscriber lines, thereby responding to the needs for quick Internet access.

But, starting in the 1980’s, special networks for data transmission were created (Transpac, for example, in France); and CIT met with great success in France and abroad with DPX 25, a technology for packet switching. The rapid development of the flow of data exchange led to reconsideration of the method of transmission as well as even the structure of the network itself. The idea of continual connection (even virtual) between the caller and the person being called coincided with the technique of transmission by packets. Under this method, the message to be transmitted is broken into basic packets and each packet of information carrying its destination address is sent independently. Alcatel thus acquired various technologies in this area of data transmission, which was evolving rapidly—in particular, the QPSX technology, which had been developed in Australia to connect LAN’s (local area networks). In February of 1993 Alcatel and the American telecom operator Sprint set up a joint venture company (Alcatel Data Networks or ADN), in the United States under Alcatel management and merged into it their data transmission businesses, which had sales of 180 million ECUs.

Alcatel also developed, in its Business Systems division, a new generation of private switches (PABX), which at last comprised one unique system for the whole of the group—the capacity of which went from several secondary lines up to several hundred. The largest model (4400), which was put on the market in 1994 or 1995, depending on the country, met with especially great success, owing to its capacity to be networked and to transport voice and data.

Alcatel was attentive at this time to the arrival of a new Internet Protocol (IP) for data transmission and entered into technical and commercial relationships with companies such as Cisco, which would become the giants and very dangerous competitors when, several years later, the extraordinary success of the Internet confirmed their strategies.

However, after that period Alcatel had taken strategic positions in this new market. That’s how (and it was a decision that I had made at the last management committee meeting over which I presided on March 7, 1995) Alcatel came to acquire 10.5% of the capital of Xylan, a company recently created (a start-up), for $10 million. Xylan, founded in 1993, had, in 1994, successfully launched its first switching products compatible with the Internet standard and designed for the broadly expanding LAN and ATM markets. History would confirm this decision in a magnificent way. In early 1999, Alcatel acquired 100% of Xylan (which had become an Internet specialist) on the basis of two billion dollars for the whole of the company. That was a decision which had been carefully thought out, as reflected by the comments of Alcatel’s chairman reported in the Financial Times on March 11, 1999, inasmuch as Alcatel “had been trying to acquire Xylan for two years.” That didn’t prevent Alcatel, in 1997, from selling half of the shares in Xylan that it had acquired in 1995, undoubtedly in order to realize a profit. ADN was also closed after several years. One can, with the passage of time, regret that the decisions made in 1993/94 to expand Alcatel into the newly developing Internet market didn’t receive, during subsequent years, the continuous support of group management.

The widespread acceptance of digital technology would transform the nature of the telecommunications industry. During the period when analog technology dominated, hardware represented at least 70 to 80% of the price of a product, whether in transmission or switching, whereas it represented less than 20% with the new technologies. The principal part of the more recent products consisted of software programs, which rapidly grew in size as features were added to the systems to facilitate the operation and maintenance of the networks but also to offer new services to users, such as 800 numbers, call forwarding, and the use of credit cards. Alcatel thus became principally a software producer and employed more than 10,000 software engineers. A big effort was made to "industrialize" the production of software by unifying programming methods, program structures, and testing tools in the various centers which developed the systems. But it took a long time and was costly to overcome old habits.

On the industrial side, it would be necessary to convert the traditional factories for which the principal production was mechanical into electronic workshops where increasingly automated machines placed components on cards later assembled on frames. The cards themselves incorporated components more and more integrated, so much so that the processing capacity of a card increased rapidly and the physical size of the final product diminished in proportion. In ten years the number of cabinets making up a switching center was reduced by a factor of five without a reduction in capacity. The time needed to produce a telephone line was cut in the same proportion and the time to install a new exchange in the network by much more. One can imagine the formidable labor problem that that conversion created. The growth of the market, even though significant, wasn’t enough to compensate for the gains in productivity. That’s why the number of employees for Alcatel CIT alone went from 20,000 in 1985 to less than 12,000 in 1993.

In order to maintain its technological independence, Alcatel had to make massive investments in the new technologies. I will only evoke the three key areas for telecommunications networks: Silicon components, optoelectronic components, and fiber optics.

The etching of integrated circuits on silicon chips is at the base of electronics. Their use in telecommunications remains very weak in comparison with the demand for electronics in general. For its own uses, it appeared necessary that Alcatel dispose of the capacity to design and manufacture specific circuits making up the core of its telecommunications equipment. But it was necessary, without prohibitive development expenditures, to stay in line with the incredible progress of the components industry, which made a leap practically every three or five years towards miniaturization and, correlatively, augmented the processing capacity of the components. Alcatel resolved the dilemma by entering into an agreement with SGS Thomson which guaranteed Alcatel the transfer of technological developments made by SGS in exchange for Alcatel’s agreeing to purchase from SGS the bulk of its needs in standard components.

The production of these components was the specialty of the factory of Oudenaarde de Mietec, an Alcatel Bell subsidiary which had originally been created with the aid of Belgian public authorities in Flanders. Alcatel developed that division with perseverance. Its capacity was, in particular, doubled in 1993 by the construction of a new workshop designed to produce the latest generation of components having an etching fineness of 0.5 and, later, 0.3 microns. That technology required clean room performance levels well above those obtained in the original part of the factory—in particular, with respect to purity of the air and insensibility to vibrations. I had the pleasure of christening this new factory of Mietec on April 26, 1993 in the presence of two Belgian prime ministers, one for Flanders and the other for Belgium (an unusual situation which federalism had created, presenting certain problems of protocol which the good humour of each enabled us to overcome without difficulty).

That’s how Alcatel was able to continue making specific circuits which concentrated more and more the added value to telecommunication products, at the expense of traditional fabrication processes which involved the production of cards with printed circuits on which were deposited discrete components. The capacity to make its own circuits enabled Alcatel to keep control over its latest generation products in all areas, and even to undertake new manufacturing processes, such as for mobile phones.

Having sensed for a long time the future in optical transmission, Alcatel also made that one of the principal focal points of its research and development efforts, along with the two components involved in this new technique, the optical fiber and the laser. The wager seemed particularly bold inasmuch as, with respect to the fibers, for example, Corning dominated the world market as a result of its patents. However, unlike silicon components, the applications for optical technology would be found principally in the telecommunications field; and, hence, it seemed to me indispensable that the leader that Alcatel wanted to be have its components at its own free disposition without having to depend on external suppliers, especially if they should be competitors.

From the 1970’s the CGE group took an interest in these technologies, on which the Laboratoires de Marcoussis research center worked. From the time of my arrival at Les Câbles de Lyon, I wanted to prepare the way for commercial utilisation of this new technology and, therefore, ensure industrial fabrication of optical fibers, cables made with optical fibers, and the accessories necessary for their connection. CLTO (Compagnie Lyonnaise de Transmission Optiques) was created in order to have a team that would devote itself completely to that new technology in its own structure independent from the traditional division.

Here too I must, even if only summarily, speak in some technical terms in order that the reader may appreciate the incredible course that Alcatel followed with respect to this new technology.

An optical fiber is a long, very pure strand of quartz which conducts light. In order to do that, it must not lose the light injected at one end—that is, it must prevent the light from escaping from its surfaces and, at the same time, ensure its propagation without weakening it. The first fibers were said to be at gradient index. That is to say that the refractive index is decreasing from the center to the surface. This structure has the property to deviate toward the center a ray of light which moves away from it and, in this way, to confine it within the fiber. But that deviation depends also upon the length of the light wave, even with a very pure source such as lasers. There is always a certain amount of dispersion which distorts the light signal. These fibers were called multimode, implying propagation. To reduce that disadvantage, monomodes (index step fibers) were manufactured. With respect to these fibers, the core is surrounded by a coating having a slighter index and the light ray reflects off the surface, which separates the two middles, and, more or less, “goes straight ahead.” These new fibers, having an exterior diameter similar to their predecessors (about 120 microns—that is, less than .005 of an inch), had a core (an area where light is propagated) of ten or so microns. One can easily imagine how slight manufacturing irregularities (for example, concerning the centering or size of the core) rapidly resulted in a diminution of the propagation of the light ray.

The degree of weakening of the light which propagates in the fiber depends also on the purity of the crystal and varies depending upon the length of the light wave (or the “color”). It is measured in decibels (db). A weakening by 10 db reduces to one-tenth the light energy transmitted. The first generation of fibers used lasers providing light waves having a length of 0.8 micron and suffered a weakening of several decibels per mile. In several years we learned to work with lasers providing a longer light wave (1.3 micron, initially, and then 1.5 micron) and more powerful; and the weakening fell to a few tenths of a decibel per mile.

The first step in the manufacture of a fiber consists of producing a preform, a big glass bar of which the composition (refractive index) must be rigorously controlled because it determines the quality of the fiber to be later obtained by heating and stretching. The ultimate result is that the transversal structure of the fiber reproduces homothetically that of the preform. Initially, Alcatel manufactured preforms under a license from Corning; later, it used its own process. In that area, also, considerable progress was made in a few years enabling the production of fibers more quickly and at greater length (100 or 200 miles) because we had learned to make larger preforms while ensuring the perfect homogeneity and symmetry required. As a result, Alcatel was able to use these processes and two factories, one in France and another in the United States, were able to produce several hundreds of thousands of miles of fiber annually.

The laser, the second component strategically important for optical transmission benefited, as well, from significant research, and Alcatel developed an expertise recognized worldwide. Originally Les Laboratoires de Marcoussis took an interest in all types of lasers, including powerful lasers or lasers for military applications. A company (Cilas) was even created for military applications. It became part of Thomson at the time of the big 1984 agreement. Alcatel specialized in lasers designed for telecommunications.

Lasers have the property of emitting, when properly stimulated by an electrical current, a very pure light (nearly monochromatic). Research and development in this area consists of increasing the power emitted and the linearity of the emission, through structures which produce a light within the range of wave lengths for which the weakening of the fiber is minimal.

The coupling of the laser and fiber is also a critical point in the process inasmuch as the goal is to inject into the core of the fiber the bulk of the light produced.

Correlatively, it was necessary to develop receivers which, at the end of the fiber, stimulated by the light signal, converted it into an electrical signal.

But the progress didn’t end there. A system of transmission, particularly in the case of a transcontinental undersea cable, is too long for the light signal injected at one end to still be legible at the other end. It was necessary, therefore, to regenerate the signal at regular intervals; and the more that the signal is finely modulated, because it is the carrier of a lot of information, the more often it must be regenerated. That’s the function of the repeaters which convert the arriving light signal into an electrical signal which is amplified and restructured and is then sent to a laser which injects the new light signal into the fiber of the next segment of the cable.

Other progress would be made, such as optical regeneration of the signal (without conversion into an electrical signal) and wavelength multiplexing. We knew how to manufacture lasers so finely monochromatic that it was, therefore, possible to transmit on the same fiber, and in the same range of wave lengths, several light signals having "colors" slightly different (up to several 10s)—that is, different wave lengths that could be separated and handled independently upon arrival, owing to a system which, similar to a prism, separates the colors of the spectrum.

The combination of all this progress made on fibers (reduced weakening and better conservation of the quality of the signal) and lasers (greater power and better purity of the light) made it possible to increase in a spectacular way the flow of information that could be carried on a pair of optical fibers. The first commercial connection delivered by CLTO was, in 1980 for a radar data transmission for the airport in Nice. It transported a 2 Mb per second signal over a little more than a mile. Fifteen years later, Alcatel made transoceanic connections of several gigabits per second and was preparing, with multiplexing, for capacities in the order of terabits per second—that is, a flow a thousand and a million times greater. At the same time, the distance between repeaters was increased tenfold, going from several tens of miles to several hundreds of miles, such that ground links, and even certain undersea links, were henceforth completed without repeaters. The command of this technology and the prospect of very strong growth in demand explains the perseverance shown by Alcatel to acquire STC.

To ensure our own source of these optoelectronic components for use specifically in telecommunications, we decided, following the example of Mietec, to create a subsidiary specialized in optronics. A brand new factory was constructed near Les Laboratoires de Marcoussis in Nozay, outside of Paris. In 1994 it began manufacturing and rapidly responded to expectations owing notably to the expertise of Terry Unter, its CEO, whom I had seen at work at Mietec and then later at Belling in Shanghai. A highly skilled, Canadian engineer with significant international experience, he must have mixed feelings about his time spent in France. Despite a brilliant technical success, his stay was cut short following an obscure matter concerning working hours which the Evry public attorney’s office went after relentlessly. Here also I regret having set the operation up in France. If it had been built elsewhere, in Oudenaarde for example, near Mietec, that engineer would undoubtedly still be working at Alcatel.

Industrial production of these optoelectronic components, which commenced in 1994, would rapidly make Alcatel's Optronics division one of the leading suppliers in the world. Six years later it enabled the chairman of Alcatel to state, in a letter to shareholders:

"Our optical components business is in full expansion.... Alcatel is a major player in this sector and intends to emphasize and develop fully its expertise and the quality of its achievements in this area."

In the high technology field, one day’s success is often the result of decisions made long before and efforts persisting over several years.

Alcatel also made a big effort in the radio communications fields. I will discuss two sectors—mobile telephones and telecommunications satellites.

 

It was explained earlier how, since the arrival of the GSM (Global System for Mobile Communication) standard, which codified mobile telephony on an international level, Alcatel undertook, at first in a consortium with AEG and Nokia and then alone, a vast development program, which would bear fruit first in the fixed network area and later with wireless phones.

Alcatel’s entry into this new market seemed natural for fixed installations, which were comprised of two parts: First, the radio segment with its network of radio base stations which communicated with mobile telephones, as well as the management of those base stations, which was encompassed in the “Radio Space and Defense” (RSD) product group; and second, the switching segment which ensured the interface with the fixed network for the delivery of communications, as well as the management of mobile phone subscribers. With respect to the radio segment, development was difficult because we lacked the experience which our competitors had acquired in the analog mobile telephone business. Nonetheless, we were able to offer telecom operators equipment which was largely in use at the time of the installation of new networks in most countries. With respect to the switching segment, despite having several times made the decision in principle to develop a single system, I couldn’t prevent two systems from actually being developed, one based on the E10 and the other on the System 12. In fact, there were three systems if one takes into account the numerous specificities required by SEL, which differentiated its system from the one developed by Bell, which was more widely used by the various Alcatel subsidiaries. This multiplicity of developments, which Jo Cornu, the manager for network systems products, was unable to prevent, was costly for Alcatel. Nevertheless, it enabled Alcatel to offer, in a timely fashion, to its traditional customers systems compatible with the products already used in their networks.

In 1993 Alcatel’s success in the mobile telephone business was not questioned. With more than 2.5 million subscriber lines ordered or installed and 25% of the world market for GSM infrastructures, Alcatel held second place. Alcatel supplied, in particular, the two Parisian operators with all of their equipment, but it also had a significant presence in the principal countries of Europe, in Australia, in Asia and in South Africa.

The situation in the mobile telephone business appeared totally different. We first considered developing car phones, then the miniaturization which made personal mobile phones possible quickly won out. The power required for the mobile phone to communicate with the stations went from eight to two watts, enabling an appreciable lightening of the batteries, the intrinsic performance of which was also improved.

Parenthetically, even reduced to two watts, the power sent off by the telephone held next to the ear could present a problem. As soon as the system was laid out, I requested that the Laboratoires de Marcoussis make an analysis to determine whether the presence of that source of radiation close to the head could create a risk to the user. The response was rather reassuring. There was no safety norm in this area. Regarding physics, with respect to the telephones and frequency levels (900 Mhertz) in use at the time, the concentration of power in the tissues seemed below the level that could provoke an elevation of temperature sufficient to be dangerous for living cells. But if these two parameters developed, particularly with respect to sources at a higher frequency, which is the case with the new generation of systems and will inevitably be more and more the case (owing to congestion of the frequency spectrum), the conclusions would have to be re-examined. I feel the question will likely come up one day without it being necessary to fear a “microwave oven” effect which would fry the ear or the brain of a fanatical mobile phone user.

Alcatel’s management wasn’t favorable to the idea of having the group undertake the manufacture of these new products—and for good reasons. Unlike traditional telephones (which are relatively simple devices—even the more complex ones), the mobile phone appeared to be a sophisticated electronic device equipped with powerful processors and mass memory capable of accommodating and treating software with several hundreds of thousands of instructions. Alcatel didn’t have the experience for this kind of manufacturing, which naturally fell within the expertise of the large companies specializing in consumer electronics, notably the Japanese. Alcatel’s only experience was in the fabrication of analog phone systems (public, private and military); and its Laval facility manufactured, at best, about ten thousand mobile phones a year

But the stakes appeared to me to be huge. It seemed that this market was destined for significant development; and the continued existence of the Laval facility depended on it. In order to make a decision, I pulled together not only Alcatel’s management committee, but also the management in charge of the project and (I insisted on this point) the individual engineers assigned to it. Departing from my usual practice, before deciding, I invited each manager to give their opinion, one after the other. Each one that spoke concluded that the manufacture of cellular phones should not be undertaken but that we should instead seek to supply ourselves in the Far East. Taking the floor last, I indicated that I wasn’t of that opinion and that we needed to adapt the proposal of the people assigned to the project, give them the resources requested, and prepare for the conversion of the Laval factory for the fabrication of high technology products in high volumes. A young executive manager was named to head this division. At the cost of a substantial technical, marketing, and financing effort, he succeeded in developing in a few years a line of products that would be well received in the market and, several years later, earned for Alcatel an honorable position in this market, which would ultimately explode. The annual output of the Laval facility was brought to several million telephones. So the facility that was destined to be closed if I had followed the advice of the management committee, ultimately manufactured each day the equivalent in number that it had previously manufactured per year. But there was no relation, of course, between the unit prices. I was reminded of this meeting several years later by one of the young participants who, still impressed by the way it went and a witness to its subsequent success, expressed to me his gratitude for the risk personally taken that day.

In fact, I hadn’t really hesitated because I had always believed that an industrial group must retain its manufacturing capabilities, even at the cost of reconverting, which can be huge. In a way, it’s a question of the soul of an industrial group which distinguishes it from distribution groups or financial holding companies. As I’ve already said, in my opinion, an industrial group can’t exist without factories. I don’t hesitate to repeat that statement, which to me is obvious. Under pressure from Asian competition, Alcatel had had to substantially reduce its traditional telephone manufacturing. After in-depth market studies and technical analyses, this new, highly technical and promising market called for a clear strategic decision. Despite the risk, the decision was made. It was for me simply a typical case—and there were many others—where the leader can’t shirk from his responsibility and must be able, alone if need be, to assume the risks that the interests of the group require be taken. He must not hope for recognition of any sort but rather must think like Joffre with respect to the Battle of the Marne—no one knows who won, but everyone would know who lost.

In the satellite field Alcatel had received from Thomson the ability to manufacture live loads. A satellite consists in effect of a platform—the vehicle with its controls and its navigational and conditioning systems, generally falling within the realm of aeronautical manufacturers—and of its live load adapted to its mission, which may be telecommunications, observation, or scientific experimentation. Alcatel manufactured loads for telecommunications and observation satellites, for civil or military purposes.

The technology had progressed a lot in this field also. With respect to telecommunications satellites, for example, the technology went from a simple inert mirror which returned light beams towards the earth to the development of increased capacities and then to reflective directional antennas and then to the exchange of messages between satellites. In the military area, observation by satellite also underwent incredible progress; but most of the investments were made by the United States, which reserved the development of its systems for its domestic industry. Alcatel contributed significantly to French programs, the importance of which has been confirmed by recent events since, in grave crises. France is the only Western country to have its own information and not to depend totally on American sources.

In 1990 Alcatel negotiated an agreement with Aérospatiale, one of the French manufacturers of platforms, under which the two groups would contribute their satellite business activities to a jointly owned subsidiary, which would be managed by Alcatel. This would create a company capable of manufacturing a satellite in its entirety, at a time when substantial development of this market was anticipated. That agreement, however, could not be entered into because Aérospatiale, a nationalized company, was unable to get the authorization necessary to put the agreement into effect, as it would have resulted in a partial privatization. During that time and as indicated earlier, the rule was “neither-nor” (neither privatization nor nationalization). That hadn’t prevented, as seen earlier, the nationalization of Framatome; but this change “was a start in the right direction!”

The merger of Alcatel’s and Aérospatiale’s satellite lines of business was finally completed several years after my departure, and I was delighted to see it.

New applications for satellites were appearing at the time and Alcatel took a strong interest each time. A system for locating vehicles on the ground (GPS), originating with the American military, was made available to civilians (though at reduced performance levels). Alcatel, associating itself with the American company Qualcom, the developer of the system, took a license that enabled it to provide the new Euteltracs service and to distribute the terminals. The terminals, when placed on the vehicle and in communication with a network of satellites in low orbit (always at least three “visible”), gave its location within just several tens of yards and made possible the sending and receiving of simple alphanumeric messages. The typical application was for the management, in real time, of a fleet of trucks providing long distance transport across several countries. In each country it was necessary to set up a company to manage the service. The traditional national operators, very vigilant to avert any initiative that could infringe upon their monopoly, generally took over this line of business but made little effort to develop it. That was the case in France, in particular. However, each time that it was possible, Alcatel participated in and even created the operating company.

I believed that because of deregulation Alcatel couldn’t abstain from getting involved with companies operating the networks and furnishing telecommunications services to end-user customers. But Alcatel had to avoid direct competition with its customer operators. It was the way for us to get to know directly the real needs of the market as well as the constraints and desires of the operators—as much information as we needed to define our future products and systems. Traditionally, the marketing and the technology of our products was very much influenced by our long-time customers who were greatly structured, including at the technical level, and who tended to entrust to their suppliers only parts of the puzzle while reserving the architecture of the network and the development of the systems for themselves. We had to escape from that division of tasks by becoming capable of assuring the design and implementation of complete systems, including all the operating systems, because it was strongly sensed that the new operators which would come along after the opening of the market could have a different vision, making it necessary for us to be able to know directly what their needs were and so be able to anticipate them.

That’s how Alcatel came to make several investments, but each time in managing the sensibilities of its customer operators.

For example, Alcatel participated in the creation of the company Globalstar (1993), whose objective was to put into place a worldwide telephone network universally accessible by mobile telephones. The original principle, different from the competing Iridium system which was based solely on satellites, combined transmission via satellite (for the segment which was linked to the mobile phones) and transmission through ordinary ground networks to which the satellites send (or from which they receive) communications of Globalstar’s mobile phone subscribers. With that investment Alcatel was able to perfect the system and the manufacture of 56 satellites, but also took on the operator function. France Telecom was agitated. It wanted itself to invest in Globalstar but since it was unable to obtain in time the necessary authorizations from the government (even though the amount was modest—$20 million), it asked Alcatel to invest on its behalf. We reached an intermediary agreement in the end. We agreed to transfer to France Telecom 51% of the stock of the holding company which held the interest in Globalstar; that took place several months later.

It was also during this time frame that Alcatel took an interest in the promotion of a new system for radio broadcasting by satellite, Worldspace, designed to cover vast territories such as Africa, where terrestrial broadcasting was difficult because of the lack of infrastructure or the inadequacy of its maintenance. Digitized radio (therefore of excellent quality) was broadcast by satellite directly to homes on the ground equipped with specially designed radios for which the price would correspond with the income of the inhabitants of the covered territories. To facilitate deployment of the project, I authorized our subsidiary Alcatel Espace (Alcatel Space) to contribute up to 5 million ECUs to the capital of the future operator. This project was to be completed six years later. Alcatel didn’t even have to invest in the operator and provided about a billion ECU’s worth of services to this rather original project.

Another example of such an investment was the GSM. During 1991 I learned of high-level contacts between AT&T and the French Polynesian authorities. It should be pointed out that French Polynesia is a French overseas territory where Alcatel Alsthom had had regular commercial activities for a long time and also provided certain services at the nuclear testing center in Mururoa; it was a territory with which we were very familiar. Alcatel had, in particular, provided the Office des Postes et Télécommunications (OPT) with the most modern equipment which made that archipelago a French telecommunications showcase for the Pacific. The territory had received from France the expertise for local telecommunications. The OPT, a territorial public institution, was responsible for it and fulfilled its mission with competency and efficiency. However, it clings jealously to its independence from France Telecom, emanating from the old tutelary government. However, as was the case in France, a movement in favor of telecommunications privatization was just getting underway and I was concerned that this would benefit the major American operator. Everyone knew that the French presence in this vast territory of the South Pacific was contested, whether openly or behind-the-scenes, by many.

Knowing that the OPT was thinking of equipping Tahiti, the most populated island, with a GSM network, we decided to propose not only a technical solution but a solution complete with financing and operation of the system. After lengthy talks a new company was created—Tikiphone. Alcatel held a majority of its capital but with a significant minority participation by the OPT, as well as by private Polynesian interests. The network was installed and quickly became operational, to the satisfaction of the subscribers and shareholders. But unfortunately (at least this is my opinion), my successor abandoned this experiment, sold Alcatel’s shares to the OPT (realizing a capital gain) and in fact relinquished an excellent strategic position in the event of a complete telecommunications privatization, which was still possible, especially if the transfer of know-how from France to the territories were increased.

We were also very interested in the opening up of the telecommunications market at home. We had, in particular, prepared, presented and defended a proposal made in response to a call for bids to choose the third mobile telephone network operator. Our proposal was clearly viewed favorably by the commission that analyzed the offers, as was shown by the documents made public. The final award, however, went to a newcomer in the telecommunications arena, but not in the media. Its offer was based largely on a system provided by our French competitor, which for the most part utilized imported equipment. But the entry of that equipment into France would be facilitated because, several months later, this supplier recruited someone very close to the telecommunications minister who had closely followed the consultation and selection procedure. I don’t claim to establish a cause and effect link in this narrative nor by pointing out the possible privileged relations with the media. Still, the final decision left us with a bitter taste in our mouths, especially when I relate it to the unsolicited comments that had been made to me by a promising politician a few months earlier. According to him, we were wasting our time in submitting an offer because the decision in favor of the competing offer was inevitable in light of the election campaign which was about to take place. That was in 1994.

Like the legendary Japanese commercial traveller, having come from the third operator, we decided to buy 25% of the second operator that was held by a bank. This investment enabled us, by participating on the board of Cofira, to familiarize ourselves with the problems of an operator, which was our goal in this persevering move. In this case also my successor subsequently decided to sell this investment and, in so doing, earned another capital gain—this time, a very substantial one involving several billion francs.

Product development was also undertaken in Alcatel Alsthom’s other business lines, but to a lesser degree because the technologies in those fields advanced less quickly. But the effort to develop internationally (both technical and commercial) was general and would rapidly bear fruit.

A regret nevertheless tarnished these results. It was not possible to get back the control of Framatome that we had lost in 1990 for political reasons, as explained earlier. In 1993 the new government announced a broad policy of new privatizations and so the environment appeared favorable. Intense negotiations took place with Philippe Rouvillois, chairman of CEAI, who had been authorized by the government to conduct them, and we arrived at an agreement which was submitted for its approval. The atmosphere had evolved within company management since the crisis of 1990 and the emblematic chairman of Framatome, Jean-Claude Lény, even declared in a press conference that he saw advantages in the company’s being backed by a major industrial group such as Alcatel Alsthom. All the obstacles seemed to have been removed. The government dragged out its decision. In the last months of 1994 it reluctantly concluded its consideration by refusing to approve the agreement. It was preoccupied with the election campaign. That’s how the possibility of making a major electro-mechanical group with Framatome and GEC Alsthom died forever.

Notwithstanding that difficulty in the nuclear technology area, Alcatel Alsthom’s financial situation appeared particularly solid in 1993 despite the economic crisis which slowed its activity in its traditional European markets. The course that had been followed since 1986 was impressive. Sales for 1993 were 156 billion francs (twice the 1986 figure). Of this amount 75 billion came from telecommunications (compared with 25 in 1986) and 30 billion from cables (compared with 11 in 1986). Sales were, however, 3% lower than the preceding year and the European portion went, during the same time period, from 75 to 72%, whereas sales in Asia increased to 11% (compared with 8% in 1992). With respect to telecommunications alone, the change was yet more abrupt. The European market figures went down between 15 to 20% (compared with 1992) in countries such as Germany and Italy. Alcatel succeeded, nonetheless, in limiting the reduction of its sales to 1%, thanks to significant growth in exports, particularly to Asia. The European subsidiaries of Alcatel increased their exports by 30% in 1993.

Orders in the amount of 158 billion francs renewed the order book but showed hesitation on the part of customers to invest in the current economic climate. The group reported an operating profit of 14.3 billion francs, roughly similar to that of the previous year at 9.1% of sales, a rate roughly the same among the major Alcatel and GEC Alsthom sectors (11.1% for telecommunications, 7.4% for cables, 8.2% for energy and 15.7 for services).

The net profit for the group was 7.935 billion francs, after 15.2 billion francs for research, 2.488 billion francs in restructuring expenses (2.850 billion francs annual average over three years), and 2.053 billion francs in goodwill amortization. After deduction of the minority interest (870 million), the net profit was 7.062 billion francs for 1993 (compared with 1.159 billion francs in 1986). That year it was the largest profit reported by a French company, and it was obtained with practically no exceptional capital gains (only 75 million francs).

Operations generated a cash flow of 16.6 billion francs, more than enough to cover capital investments (7.1 billion francs) as well as financial investments (4.0 billion francs) and making possible a reduction of the group’s debt. At the end of 1993 the net debt was 7.2 billion francs (compared with 26 billion at the end of 1986) and stockholder’s equity was 58 billion francs (compared with 11 billion at the end of 1986).

I often had to make presentations to the financial community concerning the group’s activities, strategies, and results and to describe the situation of the company. On May 6, 1993, for example, I participated in the JP Morgan Paris Investor Conference. From my presentation that day I will show three charts which summarize the breakdown of Alcatel Alsthom’s sales (remembering the three acquisitions: Thomson, ITT, and Fiat Telettra), the increase in net profits, and the comparison of Alcatel’s sales with those of its principal competitors in two fields: Energy and transportation (vertical line) and telecommunications (horizontal line).

The following chart perfectly illustrates the position that Alcatel Alsthom had achieved in 1993 on the international scene: First place.

In energy and transportation, only ABB came out ahead of us; but Alcatel Alsthom came out ahead of the American companies General Electric and Westinghouse, the German company Siemens, and the Japanese companies Mitsubishi and Hitachi. In telecommunications Alcatel Alsthom was the world leader ahead of AT&T, Siemens, Northern Telecom (which would become Nortel), NEC, Ericsson, Motorola, and Nokia.

Alcatel Alsthom had clearly benefited from the advances made, both technical and commercial, resulting from its persistent strategy of increased productivity, research and development, and expansion into new markets.

For example, GEC Alsthom, for the fourth consecutive fiscal year, increased its operating results, for which the rate approached the average of the group. GEC Alsthom had just put into commercial operation, on EDF’s Gennevilliers site, its first 9F gas turbine which, from the moment of its being put into operation, reached the highest power ever attained by a single gas turbine (215 MW, and later, 250 MW). The very favorable position of GEC Alsthom in the combined cycle gas turbine field was confirmed. At the end of 1993, thanks to twenty projects underway in the world, the company held almost a quarter of the 50 Hz market (that is, the market of non-American standards countries). GEC Alsthom could also take pride in the smooth start up of the Chinese nuclear power plant in Daya Bay, for which it had provided the conventional part and which had attained its rated power of 1,000 MW. Thermal power stations and hydraulic generators were also underway or ordered in Canada, India, China, Thailand, Taiwan, South Africa and Mexico.

With respect to transportation, in 1993 GEC Alsthom received an order for two 1,800-passenger cruise ships for Les Chantiers de l’Atlantique, which was in the process of becoming a luxury liner specialist. With respect to rail transport, the company continued to experience successes, with the manufacture of subway cars for Caracas (Venezuela), for the N° 5 line of the Santiago (Chile) subway, and for Lines 3 and 5 of the Valence (Spain) subway, as well as in connection with traditional rail equipment (Belgium and Mexico). But the star performer remained the TGV, for which GEC Alsthom, after the order of 37 trains for the Paris-Brussels-Amsterdam line and Cologne, had just received one for 8 additional trains for the Spanish AVE and would receive the order for the Korean train several months later. This latest success, which would create a big splash, and rightfully so, confirmed the pre-eminent role of the French TGV, the only exported high speed train which was running, or would be running, in seven countries besides Korea: France, Spain, Belgium, the Netherlands, Great Britain, Switzerland, and Germany.

As for Cegelec, it strengthened its position, particularly outside of France, with respect to electricity network equipment (Indonesia, the United Arab Emirates, Vietnam, and Brazil), general electrical installations for nuclear or conventional power stations (France, Mexico, Hong Kong) and hydraulic generators (Argentina, Mexico and Pakistan). In the industrial automatism area, Cegelec received orders for refineries (Kuwait) and drilling platforms, as well as orders in the nuclear field (Marcoule) and for ocean vessel propulsion equipment (ice breakers for U.S. Coast Guard ships and British frigates). At that time Cegelec made clear its plan to develop significantly in this sector by acquiring the corresponding business activities of AEG, which was operating in Germany for the most part. With sales of 2.5 billion francs and 2,600 employees, this would double Cegelec’s size in industrial automatism. This project would not be completed until 1995.

The publishing and media area also expanded with, in particular, the objective of seeking out and preparing for new business activities which the current state of multimedia technology foresaw. Alcatel Alsthom’s interests in publishing rested in its position as a significant shareholder of the Groupe de la Cité, for which sales exceeded 7 billion francs. In the media area, the written press was in first place. The Express group, reinforced by the acquisition of Le Point and then of Courrier International, had sales of 1.1 billion francs. But Alcatel Alsthom, through Générale Occidentale, which was headed at the time by a chairman, Françoise Sampermans, who was particularly effective in dealing with people and whose determination could sometimes be overlooked because of her affability and charm, was able to overcome many obstacles and took an interest in new fields: Radio, with the acquisition of 49% of Radio Nostalgie, in anticipation of the privatization of Radio Monte Carlo, its parent company; and television, with operational responsibility for the European channel Euronews, in which the group took a minority interest. But the group also took an interest in cable television by the purchase of Rediffusion in Switzerland and the trial effort to develop a teleshopping company.

All of these transactions, like the positions sought or obtained in the telecommunications operator area, were made to familiarize the group with the multimedia world, which was advancing, and to prepare for an eventual diversification from this base of new telecommunications technologies that Alcatel had mastered or developed.

During the years 1993-1994 Alcatel had indeed developed new lines of business besides traditional switching and transmission in which it was the world leader.

With respect to broadband switching, Alcatel had for customers during this period eight of the ten countries which had decided to equip themselves with ATM technology while each of its two competitors had only won over two customers each. I already indicated Alcatel’s N° 2 position worldwide for GSM mobile telephone infrastructures and the developments launched with respect to data networks which would explode with the Internet Protocol. Alcatel had over 30% of the SDH synchronous transmission (or Sonet) market, compared with 17% for traditional systems, which made the company the world leader for SDH. That position was officially solidified by the December 13, 1993, $100 million Sonet cross-connect order from AT&T’s long distance division. AT&T had already bought certain products from outside of its own group, but never before strategic products or for such an amount. Alcatel also confirmed its position as world leader with the acquisition of STC for undersea systems, which were all fiber optic from this point forward. It was also during this period that Alcatel announced its participation in the universal mobile communication satellite system, Globalstar.

Alcatel had thus acquired exceptional credibility for all of the new technologies. That position constituted an important advance for participating in markets like multimedia, for which the prospects for development seemed mesmerizing. Alcatel completed entire pay-per-view video systems for British Telecom and Bermuda Telephony Company (several thousand subscribers) designed to test future home interactive services. Alcatel had also developed the first ATM system for digital transmission of movies, shows and high definition videos. This system was chosen by Pacific Bell in the United States for its program “Cinema of the Future” for direct movie distribution to theaters.

In April of 1994 I completed my presentation to the press regarding Alcatel’s activities by stating:

"The interest in multimedia today can profoundly change our way of life and behavior and soon lead to formidable technological developments in connection with direct access to interactive information. I think that Alcatel’s overall vocation is also a fundamental advantage for seizing the opportunities that the technologies of tomorrow will provide."

The position captured by Alcatel Alsthom in its markets gave it a very positive image in 1992 and 1993 and resulted in very (too) flattering comments.

On December 9, 1992 Alcatel Alsthom received the 1992 Prix Cristal (Crystal Award) from the Compagnie des Commissaires aux Comptes and the newspaper Les Echos for the transparency of its financial information.

"In January of 1993 La Tribune Desfossés awarded Alcatel the prize for the best strategy. The Tribune prize, according to its sponsors, recognizes the entrepreneur which by its strategy leaves the greatest imprint for the year:

"It is to the head of Alcatel Alsthom that the award is given for 1992, the year of a very significant strengthening, making his group N° 1 worldwide for telecommunications, turbines and the TGV, in particular."

On December 3, 1993 the jury assembled by La Vie Française awarded Alcatel Alsthom the first place prize among companies recognized for their financial image, which got us on the magazine's cover with a photo of the chairman of the group “first among shareholders’ favorite companies.” The press tended to excessively focus its comments on the chairman, with a photo to back it up. Time Magazine, in January of 1992, subtitled its article on Alcatel, “Alcatel has abandoned its overburdened past to become the telecommunications champion” and continued further on “...Suard engineered a series of mergers and agreements which, in 1991, propelled Alcatel ahead of AT&T, the American telephone giant, and made the French company the recognized world champion in telecommunications!” As for Le Nouvel Economiste (July 24, 1992), its cover page heading read: “Alcatel Alsthom: The secrets of success.” Others read: “Alcatel Alsthom: Suard’s success” (Figaro Economie, 14 mars 1992); “Irresistible ascent” (La Tribune, October 12, 1992); “The Suard method, iron hand in a velvet glove or how the timid engineer turned into an undisputed manager." (Le Nouvel Economiste, April 10, 1992).

In fact, a lot of articles, while applauding the results obtained, took up again the comments that had been made at the time of my appointment to the head of the group on the theme of a provincial engineer cost-cutter, non-strategist, shunning society life. Le Nouvel Observateur outdid itself in this regard in September of 1993. Under the heading, “He’s the most powerful man in France,” was written:

"After the TGV, the telephone and the nuclear industry, the press.… At the head of the largest French private sector company, Alcatel Alsthom, he has at his disposal ten billion francs a year to buy whatever he wants.…. Unlike his flamboyant predecessors, Ambroise Roux and Georges Pébereau, Pierre Suard preserves his profile of a factory manager. Portrait of a un petit homme gigantesque [a humble giant]."

Following that were four pages of text with rather balanced comments:

"Surprise! This hard-worker has revealed himself also to be a whiz at kriegsspiel, a fearsome negotiator. Add to that a frenzy of restructurings with massive job eliminations. The results are there: Under Suard’s seven-year reign the value of Alcatel Alsthom went from 15 billion in 1986 to 108 today! ‘What an accomplishment!’ said a former Socialist Interior minister who, at the time, was complaining about seeing this militant boss cutting jobs first in towns governed by the Left."

Of course, that wasn’t at all the case. But these continuously repeated clichés had an effect in the end and when difficulties came they were all that remained.

I never wanted this personalization but the public relations specialists said that that was the fashion and it was even indispensable[1]. It was for this reason that, as revealed in The Letter A of November 4, 1993, I refused to be designated "Manager of the Year in 1993".

"The chairman of Alcatel Alsthom indicated that he did not wish to receive such a prize which rewards the man because it’s the company that should be honored. Noël Goutard, who had been in second position, was finally chosen by Le Nouvel Economiste."

The merit for Alcatel Alsthom’s successes went, indeed, to a large team in such a huge group. But these words were not well received. If you put your co-worders out in front as they deserve, you are labelled as timid.

That craze for Alcatel Alsthom called for a correction. The economic crisis had its effect in Europe and finally touched the activities of the group.

Alcatel Alsthom had the assets necessary to make it through that crisis honorably if its course had not been derailed by an incredible affair about which I will say a few words in my conclusion.

 


 

[1] The reader can observe that it was also the opinion of the publisher who insisted on the idea of personalizing the cover of this book

 

 

<< Chapter VII: International Expansion   -   Chapter IX: The Tarpeian Rock >>