ANALYSIS

The convergence of voice and data turns out to be merging of voice into data networks. As voice is transmitted over IP networks, call control switching is still needed. But, the shrinking markets are driving market consolidation. The trend towards consolidation in the global telecommunications industry is expected to continue into 2003. Lucent is positioning to embrace new network architecture that the RBOCs use to implement networks in a more efficient manner

Lucent is positioned to participate in the continuing expansion of wireless capabilities. End-user demand for network capacity from businesses and other organizations is expected to continue to grow in 2002 creating market demand for Lucent products. In 2002, declines in service provider capital spending in the area of long-distance optical networking are continuing.

Telecommunications markets are going to have diminished size early in the forecast period with some recovery later on. Telecommunications infrastructure is a primary economic driver in both developed and underdeveloped countries. New telecommunications infrastructure provides direct benefit because it supports reliable communication, universal access to voice communication, and Internet access. Telecommunications infrastructure provides indirect benefit by supporting the ability to achieve an educated population. The Internet provides access to information for enterprise training and learning that is useful for every discipline. This promises to continue. The Internet has become a significant sales and distribution channel in every industry. The Internet automates supply chains, changing the economics of doing business.

Lucent will continue to have its strongest markets in the United States. In the United States service providers are beginning to utilize excess network capacity. Only later will carriers exceed their excess network capacity. Once service providers have exhausted their current excess network capacity and begin to engage in new network expansions, service provider demand for long-distance optical networking equipment will occur.

Start-up and smaller telecommunications customers are struggling or faltering. Economic stimulus measures by the United States and other countries, such as the proposed deregulation of the Local Access Transport Area (LATA), may provide new spending opportunities for service providers around the world uncluding Lucent.

Telecommunications equipment shipment forecasts at $204.8 billion in 2001 are expected to reach $344.1 billion by 2007. Lucent will participate in these markets with significant market presence.

REPORT METHODOLOGY

This is the hundred and thirty-seventh report in a series of market research reports that provide forecasts in communications, telecommunications, the internet, computer, software, and telephone equipment. The project leaders take direct responsibility for writing and preparing each report. They have significant experience preparing industry studies. Forecasts are based on primary research and proprietary data bases. Forecasts reflect analysis of the market trends in the segment and related segments. Unit and dollar shipments are analyzed through consideration of dollar volume of each market participation in the segment. Installed base analysis and unit analysis is based on interviews and an information search. market share analysis includes conversations with key customers of products, industry segment leaders, marketing directors, distributors, leading market participants, opinion leaders, and companies seeking to develop measurable market share. Over 200 in depth interviews are conducted for each report with a broad range of key participants and industry leaders in the market segment.

WinterGreen Research , founded in 1985, provides strategic market assessments in telecommunications, communications equipment, health care, and advanced computer technology. Industry reports focus on opportunities that will expand existing markets or develop major new markets. The reports assess new product and service positioning strategies, new and evolving technologies, and technological impact on products, services, and markets. Market shares are provided. Leading market participants are profiled, and their marketing strategies, acquisitions, and strategic alliances are discussed. The principals of WinterGreen Research have been involved in analysis and forecasting of international business opportunities in telecommunications and advanced computer technology markets for over 30 years.

Ellen T. Curtiss, Technical Director, co-founder of WinterGreen Research, conducts strategic and market assessments in technology-based industries. Previously she was a member of the staff of Arthur D. Little, Inc., for 23 years, most recently as Vice President of Arthur D. Little Decision Resources, specializing in strategic planning and market development services. She is a graduate of Boston University and the Program for Management Development at Harvard Graduate School of Business Administration. She is the author of recent studies on worldwide telecommunications markets and the Top Ten Telecommunications market analysis and forecasts.

Susan Eustis, President, co-founder of WinterGreen Research, has done research in communications and computer markets and applications. She holds several patents in microcomputing and parallel processing. She is the author of recent studies of the Regional Bell Operating Companies' marketing strategies, Internet equipment, a study of Internet Equipment, Worldwide Telecommunications Equipment, Top Ten Telecommunications, Digital Loop Carrier, Web Hosting, and Application Integration markets. Ms. Eustis is a graduate of Barnard College.

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REPORT NO. K937264387128 300+ PAGES 100+ TABLES AND FIGURES 2002

Lucent Market Assessment