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French phone venture forms
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July 20, 1999: 7:42 a.m. ET
Alcatel, Thomson Multimedia combining Internet home phone activities
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LONDON (CNNfn) - French telecom operator Alcatel and television maker Thomson Multimedia agreed Tuesday to merge their home telephone activities in a joint venture dedicated to Internet-driven phone calls.
The new venture, with estimated annual sales of $800 million, seeks to fuse Alcatel's name recognition in Europe's home telephone service market with Thomson's strength in the United States -- where it enjoys a 25 percent market share, thanks largely to the success of its RCA and General Electric TV-set brands.
Alcatel already owns a 7 percent stake in Thomson Multimedia and a 16.6 percent interest in Thomson-CSF, the 43-percent owned defense electronics unit of industrial conglomerate Thomson S.A. Thomson Multimedia is a wholly owned subsidiary of Thomson S.A.
Thomson-CSF (PHO) has been the target of speculation that the French state is looking to trim its holdings in the company. That could give Alcatel a green light to expand its interest in Thomson-CSF, whose stock jumped more than 4 percent in Paris Tuesday after the venture was unveiled.
Thomson makes a wide range of consumer electronics products, ranging from audio and video products to broadcast equipment.
Alcatel, with revenue of $24.8 billion last year, makes equipment for telecommunications networks. In the past couple of years, the company has shifted its focus to emerging digital technologies such as telephony, in which voice and visual data is relayed over the Internet rather than a regular phone line.
Technology with vast potential
Though still in its developmental stages, observers say Internet-driven phone service holds out the promise of higher-quality calls at a fraction of the cost charged by traditional telecom carriers.
According to a joint statement released Tuesday, Alcatel and Thomsom Multimedia view their joint venture as a "springboard" to creating a leader in "the emerging Internet-driven and digital home communications market."
The new company will be managed by Thomson Multimedia, in which the French government owns a 70 percent stake. It plans to expand its mass-market presence with products ranging from digital cable modems to Internet screenphones and e-mail phones.
Microsoft, NEC, Alcatel and DirecTV collectively hold the remaining 30 percent stake in Thomsom Multimedia.
The companies did not shy from grand ambitions in their joint statement Tuesday. "With annual sales of 25 million units and more than $800 million, the company is poised to be number one worldwide in home telephony," the statement said.
Alcatel (PCGE) shares were off 1.61 percent at 134.3 euros in Paris late Tuesday morning. 
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