Getting China Hardwired

If you live in China and are a subscriber to China Unicom (NYS: CHU) , that country's second largest fixed-line and wireless carrier, then there's a good chance that Alcatel-Lucent (NYS: ALU) will become a household name. That's because the company beat out three Chinese hardware vendors -- Huawei, ZTE, and Fiberhome -- for the largest chunk of China Unicom's recent fiber-to-the-home business.

Out of the 15 million optical ports that China Unicom will eventually deploy, Alcatel-Lucent won the right to supply 6 million of them. The technology they will use is called GPON, or Gigabit Passive Optical Network. It's a cheaper way to bring ultra-high-speed broadband to individual premises at speeds up to 100 Mbps.

Sharpened elbows
China Unicom plans to extend its GPON with Alcatel-Lucent to 29 provinces in China. Earlier in the year, Ericsson (NAS: ERIC) signed a deal with China Unicom to provide a GPON to 10 provinces. Both infrastructure providers are becoming more competitive with traditional Chinese infrastructure leader Huawei.

Last September, Alcatel-Lucent signed a deal with China Telecom (NYS: CHA) for a 3G network upgrade. China Mobile (NYS: CHL) is also using Alcatel-Lucent in Shanghai as it builds out a 4G TD-LTE test-bed network.

And Ericsson took it right to Huawei in March, when it signed a $1 billion infrastructure deal to expand China Mobile's 3G network. That was a bit of payback for Ericsson, as Huawei has been successful recently in getting hold of some of that European capital expenditure, a market that Ericsson thought it owned.

Patents, of course
And just to make things a bit more interesting (think Samsung vs. Apple), there's also been a bit of an open war going on between Ericsson and ZTE as they find themselves competing more and more. Each has filed lawsuits against the other claiming patent infringements.

Alcatel-Lucent has been installing GPON fiber systems for many major carriers around the world, including Verizon (NYS: VZ) for its FiOS network. And GPON is on its way to becoming the dominant passive optical-network technology in China. Alcatel-Lucent has put itself in a good position to sign up some of that growth.

How to take this news
But is Alcatel-Lucent a stock to buy, at least for now? It missed its quarterly earnings guidance and was punished with an 18% plunge just a week ago. The reason CEO Ben Verwaayen gave was "weaker revenues than initially planned in the fourth quarter of 2011."

The global economic upheaval makes carriers more hesitant about committing large capital expenditures, and it makes me hesitant about recommending Alcatel-Lucent, at least for now.

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At the time thisarticle was published Fool contributorDan Radovskyhas no financial interest in any of the above-mentioned companies. The Motley Fool owns, andMotley Fool newsletter serviceshave recommended buying, shares of China Mobile. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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