Alcatel picks former Vodafone executive for new recovery bid

Loss-making telecom equipment maker Alcatel-Lucent has picked Michel Combes, the Frenchman who steered Vodafone's European business through the financial crisis, as its new chief executive.

Combes, 51 and a former finance chief at France Telecom, will replace Ben Verwaayen, who led Alcatel-Lucent for five years but failed to deliver a long-promised turnaround.

The Franco-American group, which plunged to a net loss of 1.37 billion euros in 2012, has been hit hard by the rise of low-cost Chinese competitors in the past decade and trails market leaders Sweden's Ericsson and China's Huawei in size and market share in mobile equipment.

Combes, who will take over on April 1, had been picked last year to head Vivendi's SFR, France's second-biggest mobile operator and another business in need of a revamp. But that appointment was aborted after a management shake-up at the parent company.

At Vodafone from 2008 to 2012, Combes had to cut costs and market innovatively to cope with a slump in consumer spending in southern European markets such as Spain and Italy.

"Combes is a good choice since he has a 20 year track record in telecoms, and knows the French political establishment well," said one industry analyst.

"He has experience managing difficult situation like the recession that hit southern Europe when he was at Vodafone. But the challenges at Alcatel are of a different magnitude: everything easy has already been tried and nothing has worked."

At 0852 GMT, Alcatel-Lucent shares were up 2.5 percent at 1.168 euros, outperforming a 1.1 percent rise in France's benchmark stock index.

The task ahead
Since it was formed in a merger in 2006, Alcatel-Lucent has gone through two chief executives and not been able to reach sustainable profitability or cash flows despite cost-cutting and paring its product portfolio.

The group has strong technology in fixed broadband, optical transmission gear in the backbone of networks, and fourth generation (4G) mobile, but has suffered from the costs of maintaining a broad product portfolio.

The U.S. market, which is closed to Chinese competitors and where operators have invested heavily in 4G, has saved it in recent years as it lost share in Europe and Asia.

The challenges facing Combes, who will be Alcatel-Lucent's first French chief executive since its 2006 formation, will be to continue cutting costs and making the company smaller, while not falling behind rivals in research and development.

He'll also have to contend with the political fallout of restructuring in France, where the Socialist government has expressed concern but taken little action about the group.

Here, his experience at partly state-owned France Telecom could help. At the former monopoly, he oversaw restructuring and deep cost cutting alongside then CEO Thierry Breton.

Alcatel-Lucent also named Jean C. Monty as vice-chairman of the board, effective immediately. Monty, 64, is a former chairman and chief executive of Bell Canada Enterprises.

Philippe Camus, Alcatel-Lucent's current chairman, will likely stay on since he has requested another three-year mandate, said a spokesman for the company. The mandate must be approved at the next shareholders' meeting on May 7.

Alcatel-Lucent is in the middle of a 1.25 billion euro cost-cutting plan that will result in some 5,500 layoffs and exiting of unprofitable contracts and countries.

In January it finalised a financing package of 2 billion euros, and put up its portfolio of 29,000 patents as collateral to assuage lenders concerned about its viability.

© Thomson Reuters 2013