Thomson Multimedia, Alcatel Merge Home Networking

Building on last year's agreement to work together on home-network technologies, Alcatel SA and Thomson Multimedia SA here today announced plans for a new company that will combine their currently separate activities focused on consumer telephony, Internet screenphones, and cable and ADSL (asymmetric digital subscriber line) modems.

In this marriage of two French giants -- a telecommunications equipment company with a consumer-electronics outfit -- Alcatel and Thomson Multimedia said they are looking to cash in on a huge consumer market for the Internet-driven, home-networking devices. The combined company, which Thomson Multimedia will manage, will have annual sales of more than US$800 million [M], the companies said. The new venture will be 50-percent owned by each of the two partners.

Products from the new company will include ADSL modems, Internet screenphones, e-mail phones and digital cable modems. The company also plans to develop a variety of Internet-related communication devices that take advantage of the voice-over-Internet (VoIP) technology.

Alcatel and Thomson Multimedia expect the deal -- subject to various corporate and regulatory approval stages -- to be completed during the fourth quarter. A name for the joint company was not announced.

This is hardly the first time the two vendors have worked together. Last year, as part of Thomson's ongoing privatization, Alcatel and Thomson SA took joint control of Thomson-CSF Inc., while Alcatel and Thomson-CSF pooled their satellite activities in a new company called Société Commune de Satellites.

Also last year, Alcatel -- along with Microsoft Corp., NEC Corp., and DirecTV Inc. -- took a 7.5 percent stake in Thomson Multimedia to help it develop and promote Internet-enabled televisions.

Thomson Multimedia, formerly known as Thomson Consumer Electronics, has a strong presence in the Americas with its RCA and GE brands while Alcatel has strong name recognition in Europe. Together, the partners hope to successfully marry Thomson Multimedia's know-how in consumer distribution with Alcatel's position with telecommunications carriers. They also plan to develop new distribution channels -- such as e-commerce -- for the combined enterprise.

The two companies will retain their respective modem and video-centric home networking technologies: Alcatel will continue to market its ADSL modems to telecom providers and ISPs while Thomson Multimedia will still market its cable modems to cable operators. Alcatel will also expand its direct sales to companies, the companies said.

Thomson Multimedia had sales of more than US$6 billion [B] last year, and has 46,000 employees. It claims to be the world's fourth largest supplier of consumer electronics products.

In March, Alcatel announced 1998 operating income, excluding one-time gains, of 997 million [M] euros (US$1.1 billion [B]), up slightly from 900 million [M] euros in 1997. At the same time, Alcatel said it would undertake a massive restructuring plan to cut nearly 10 percent of its staff over the next two years in an attempt to save Alcatel 300 million [M] euros.

Alcatel's screen phone, called the WebTouch in some markets, is due out later this year will offer features for e-mail, Web browsing, and online shopping.

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