R&D Effectiveness in Israël

1. R&D Effectiveness in Israël François BEHAGUE April 11, 2005

2. INTRODUCTION Alcatel has a long lasting relationship with Israël • Relation started in 1998 • Creation of Runway Telecom VC Fund in 2001, closed late 2002 Participation in numerous events in Israël since 1999 (eg Telecom Israël, Go 4 Europe, Growth & Technology Conferences...) Alcatel has developed multiple partnerships with Israeli start ups with an expansion from initial Israeli Core competencies (Optics, Security, Components) to new domains in particular Mobile Applications. Alcatel has a strong presence in Israël

3. ALCATEL IN ISRAEL • A profitable local company fully owned by Alcatel • More than 100 skilled and committed people to our customer satisfaction • Well diversified company in several segments of the local market • With some of our accounts we are the supplier of choice for many years • We manage to sell our expertise in the telecom market to become the first choice in integration projects • Focused on our long term goals to become a stable, long term running company in the local market in all relevant strategic telecommunications segments

4. ALCATEL CUSTOMER RELATIONSHIPS IN ISRAEL1/2 • BEZEQ • S12 : 63 Public Exchanges and several hundreds of Remote Subscriber Units. • ADSL – WOW network (in cooperation with Bynet) • 330,000 Central Office lines and about 200,000 Modems delivered. • We expect to have another 100,000 lines this year. • Intelligent Network –we are bidding the new IN Platform (OSP) • Legacy Data Networks (IsraNet- X25, SifraNet- TDM) • Value Added Services – Joint Venture with NESS • Optical Access

5. ALCATEL CUSTOMER RELATIONSHIPS IN ISRAEL2/2 • CELLCOM • Transmission: SDH, DWDM and Radio Backbone rings for their own use and as a platform for selling these services to large enterprises and other carriers. • ISRAELI RAILROAD • All signaling network and turn key project for their central management site. More than 45M Euro new orders in 2004. • MINISTRY OF DEFENSE • Planning, integration and implementation of systems including all kind of technologies:SDH, ATM, IP, IP Telephony, turn key integration, home land security, OSS software

6. ALCATEL PARTNERSHIPS IN ISRAEL • More than 40 partnerships with Israeli companies covering all Alcatel activities: Fixed, Mobile, Optic, Enterprise, Space • Partnerships with mature companies (RAD Group, Alvarion, AudioCodes, NESS, Gilat, BATM, Amdocs) and start ups • Local partnerships in the Mobile solutions domains • Alcatel 3GRC Echosystem of about 200 startup partners • Israël represents 25% of the Applications partners • Examples: Mobilitec, Celltick, Bamboo, LocationNet, Mobile Tornado... • Several partnerships in key strategic domains • ADSL and Access solution (Motive, BATM) • Radio Technologies (Alvarion) and Optics (Native)

7. WHY TO PARTNER WITH ISRAELI COMPANIES Israël is ranked first for R&D as a percentage of GDP • Outstanding Human Resources • Highly skilled work force • Highest quality for rather low cost • R&D Expertise • Cutting-edge military research • Investment driven innovation • Strong Venture Funding • Strong Government support both through grants/tax benefits and organization (Embassy, Export Institute, IMA) • Israël fully opened to outside world: US and Europe

8. A CONCRETE EXPERIENCE: NATIVE NETWORKS 1/2 • Native is an Israel high tech company founded in 1999 • Over 70 employees at end 2004 including many high level experienced R&D Telecom Engineers • Total funding: 45MUS$ • Main investors: JVP, Tamir Fishman, Soros PEP, Alta Berkeley, Apax, Skypoint, Infinity, Israel Seed Partners, Anschutz and Genevest. • Early 2003: strong & fruitful relationship between Alcatel Optical Network Division (OND) & Native, bringing to the market a unique & successful technology for Ethernet Packet Rings over New Generation SDH. • April 2004: decision on an acquisition & integration of Native into OND as an R&D competence center & key contributor for development of Alcatel Optical equipment next generation. • Acquisition of Native 55MUS$ achieved in March 2005

9. A CONCRETE EXPERIENCE: NATIVE NETWORKS 2/2 • Alcatel selected Native for development of Transport Technology, Israël being a unique place with concentration of expertise in Optical, Ethernet, IP • Decision to move from partnership to acquisition considered when decision to leverage Native expertise for new Optical developments taken • Our experience has started with collaboration/partnerhisp (really way to go, avoiding "rejection" risk between different organization and proving real capabilities) • Native Networks has shown: • Very high creativity & vision, innovative in way of thinking, with strong process & quality mind, many people coming from defense industry  very striong on high quality & time • A strong customer attitude: experienced in contacts on common opportunities such as Telmex-France Telecom, being pretty quick to react to new request/business opportunity • Young & friendly population, very motivated and to the point (startup minded), keen to exchange ideas in an international environment • Pretty connected to other Technical Companies in Israel

10. CONCLUSION • The CELTIC Research program in the framework of EUREKA offers opportunities for strong cooperation with Israeli companies • The SelMoNet project with CELLCOM and Israeli startup STARHOME will concretize in 2005 • Alcatel and the RAD Group are currently preparing a new project in the Fixed/Mobile convergence domain • Memorandum of Understanding signed with the Chief Scientist in November 2004 for financing common projects between Alcatel and Israeli startups STRONG WILLINGNESS IN ALCATEL TO FURTHER DEVELOP COOPERATION WITH ISRAELI COMPANIES

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