The Demise of History

The final chapter in the scramble to create one sustainable business from among the former giants?

The final chapter in the scramble to create one sustainable business from among the former giants?

As the small print that investment managers are mandated to publish on their adverts warns, past success is no guarantee of future returns.

Only two decades ago, the world’s telecommunications technology industry rested proudly on the shoulders of a small number of giants on two continents: Lucent and Nortel in the US and Canada; Alcatel, Nokia, Siemens, Ericsson (and arguably Marconi) in Europe. Combined, these behemoths shared over 700 years of history traceable back to Alexander Graham Bell, the inventor of the telephone, himself. But business is business and balance sheets place limited value on the romance of past glories. The advent of the Internet changed the rules at the turn of the new millennium. Legacy got confused about whether it was an advantage or a millstone around the necks of those that had created it.

In 2006, Nokia and Siemens merged their telecoms equipment businesses to create Nokia Siemens Networks. In the same year and for similar reasons, Alcatel and Lucent marched up the aisle and, for richer or poorer, adopted the double-barrelled ‘Alcatel-Lucent’ moniker. The logic appeared sound: weakened and vulnerable because of change, each needed economies of scale. Investment bankers and senior executives got rich by arranging the weddings. Tens of thousands of lower paid but skilled and experienced engineers were sacrificed for ‘cost synergies’.

But the mergers were dogged by cultural incompatibilities, management infighting and government interference in what had become a rapidly changing technology industry with strong and emerging competitors, some from Asia. French water and American oil proved a contrarian cocktail at Alcatel-Lucent. Nokia, meanwhile, was so dominant in the global mobile phone market that the network infrastructure business was considered a second tier unit within the group.

The newly-wed couples limped along for the best part of a decade, but arranged marriages don’t always enjoy fairy-tale endings. Siemens was the first to walk, exchanging its share in the joint venture for €1.8 billion of Nokia’s cash. Nokia went on to offload it’s troubled handset business to Microsoft. In what now looks like the final chapter in the scramble to create a single, sustainable network equipment business from the remains of many former giants, Nokia this week mounted a (seemingly amicable) acquisition of Alcatel-Lucent.

In the 20 years since these companies led the industry, we have experienced what can only be seen as its most dynamic period of development, expansion, innovation and opportunity in more than a century. Telecommunications has evolved from a mundane support role to the starring role in our lives. The rise of mobility, the Internet and broadband data have, by any standard, been meteoric. However, for the industry’s former giants, the opportunity turned out to be a tragedy of Shakespearean proportions. The tragedy was carved, in large part, from arrogance, complacency and carelessness.

If what remains of Nokia manages to navigate the outstanding regulatory and shareholder obstacles and it buys Alcatel-Lucent, the transaction will effectively consign the majority of the telecoms equipment industry’s most famous brands (all but Ericsson and Nokia) to the history books. Nokia’s chairman and CEO explained this week that an enlarged organisation would trade under the Nokia brand. So RIP Alcatel. RIP Lucent. Space will need to be found in the same cemetery where Nortel (bankrupt in 2009), Siemens (walked) and Marconi (acquired mostly by Ericsson in 2006) brands were laid to rest in recent years. The Alcatel brand may limp on in the low-cost smartphone market after TCL licensed the brand’s use when it bought the loss-making device unit in 2004.

The market will determine whether the proposed deal will be successful or not. But for me, it represents a squandering of history, of value, of careers and opportunity on a scandalous scale. Can anyone imagine a global automotive industry without Ford, General Motors, Volkswagen, Mercedes-Benz? That is the future for telecoms technology.

The lesson is not new but it is important. Change will happen. History, success and size provide scant protection when it does. Established businesses must embrace and lead industry change. Or change will eat them.