The explosive growth of wireless broadband is changing the nature of the business for kit makers, the head of mega vendor Alcatel-Lucent said during Mobile World Congress in Barcelona this week.

Speaking at the event, Adolfo Hernandez, president, EMEA, Alcatel-Lucent, said that next generation wireless broadband delivery is currently based on an unstable model which does not allow for enough synergy between open innovation on the web and network capabilities. And given the levels of data traffic predicted to hit mobile networks in the near future, the existing model is not sustainable.

“The introduction of the original iPhone raised bandwidth consumption by a factor of ten and the introduction of the 3G version raised bandwidth consumption by a further factor of three,” said Hernandez. “As more bandwidth becomes available, there is yet more demand for yet more bandwidth. Users are no longer passive consumers, they are active creators of content, the market is moving to a flat rate model so who pays to build the network?”

Hernandez argues that there is a need for a “high leverage network,” where the apps travelling over the network are aware of what the network can do, taking into account admission control, bandwidth allocation and Quality of Service (QoS).

However the waters are further muddied by the changing nature of the operator business, which is seeing lots of Pan-EMEA cooperation taking place between the independent units of multi-market players such as France Telecom, Deutsche Telekom and Telefonica. As a result, Alcatel-Lucent is changing the nature of its own business to dovetail with the needs of the market.

“In this difficult period for the market we need to take market share,” said Hernandez, “So we’re creating global teams to handle accounts and help us to become more agile. We also need a partner ecosystem, one company can’t do it all and we are encouraging others to do the same,” he said.

Earlier this month, the company said that fourth quarter revenues were down 5.4 per cent year on year to Eur4.95bn, while net loss sank to Eur3.87bn compared to a profit of Eur2.56bn in the same period in 2007.

Wireless access and convergence revenues took the biggest battering, down 15 per cent and 22 per cent respectively during the final three months of 2008, while impairment charges took their toll over the year.

For full year 2008, Alcatel-Lucent booked total asset impairment charges of Eur4.72bn, reflected in the full year net loss of Eur5.2bn.

Since January 1, a new organisation has been in place, with a newly appointed team to implement the new business model and execute a strategic plan to reduce costs by Eur750m on an annual run rate by end 2009. The realignment of management positions is underway as is the 5,000 reduction in the number of contractors.

Alcatel-Lucent is streamlining its product portfolio, refocusing its mobile WiMAX investment on what it calls the enhanced wireless DSL market opportunity, while at the same time significantly boosting investments in LTE. The company said it is also exploring co-sourcing and partnering options.

For 2009, the company expects the global telecommunications equipment and related services market to be down between 8 per cent and 12 per cent at constant currency in 2009. The company continues to anticipate an adjusted operating profit around break even in 2009.