Is the Telecom Market in Turmoil because of a Price War (Barrons-12/31/07)
In the 12/31/07 issue of Barrons, Rich Pzena, principal of Pzena Investment Management states:
"The telecommunications industry is in turmoil right now because of the merger of Alcatel and Lucent. Competitors are using it as an excuse to try and gain share. Alcatel-Lucent [ALU] is not going to let them ruin the business. This is a great business. There are only a few suppliers, and not many customers. The customers have big installed bases and tend to continue buying on their chosen platforms. In comes a competitor and says, these guys are merging and you don’t know what is going to happen. I’ll give you my product for free if you switch to my platform, and then I’ll get recurring revenues. A number of those offers are being made, and the incumbent has to match them. You have a price war.
Barrons: But how long can that last?
It can’t last long term. That’s not prudent. It would just lead to lower earnings and no market-share shifts. In the end the price war will abate and Alcatel-Lucent will be successful in reducing costs as per the merger plan."
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