The unit will be sold to a group of private investors and will become the firm's largest indirect sales channel, the company said.
Terms of the agreement, negotiated through a competitive bidding process, were not disclosed. The firm will be run by former Lucent executive Susan Loughridge Mandl, and owned by Mandl, Bessemer Holdings, and other private investors.
Following the deal, about 2,000 Lucent employees are expected to become employees of the new company, which will have regional offices across the United States.
The name of the new firm will be unveiled when the sale closes in early June, the company said. The start-up, to be headquartered in the Dulles, Virginia area, will focus on selling and integrating Lucent systems and data equipment to companies with fewer than 250 employees. Meanwhile, Murray Hill, New Jersey-based Lucent's direct sales force will focus on selling to larger corporations.
Lucent's move is a smart way for the company to offload the expense of a sales force while the company moves toward a Web-based direct sales strategy, similar to Dell Computer's model, said Frank Dzubeck, president of Communications Network Architects, a Washington, D.C. based networking consultancy.
"If this works, they win because their products are sold and they also take 2,000 people off their books," he said. "To me, this is basically saying: 'We're at a transition here and there's a great amount of money spent on the sales force.' "
While smaller customers still require handholding setting up telephony equipment today, Web-enabled next-generation equipment will begin to eliminate the need for many installation services that VARs depend on today for a good chunk of their revenues, he said. That opens up an opportunity for many more Web-based sales and services, Dzubeck said.
Angie McGuire, vice president of Lucent's Enterprise Communications Systems, said Lucent will include the new company and its business partners in future electronic commerce initiatives.
Lucent estimates that the U.S. market for small and mid-sized business systems and services is growing at 12 percent annually and is expected to reach $21 billion by 2002. In 1998, Lucent reported $850 in revenues from sales and services to small- to mid-sized companies and has nearly 800,000 customers in that market.
"We've been selling direct to this marketplace for a long time very successfully," said McGuire, who noted on a conference call this morning that the company now services about 25 percent of that market.
McGuire said the start-up will enable Lucent to create a business model that caters to an underserved market, which is demanding integrated data products and better service.
Lucent has more than 1,000 resellers who now find it difficult to compete against Lucent's direct sales channel, the company said.
"Operating in a direct channel model puts us in direct contention with existing VARs in the marketplace today," McGuire said. "This new company lets us address customers and move out of competition with the direct channel."
Meanwhile, up to 75 percent of the small- to medium-size companies buy services from the indirect channel and by creating a new firm Lucent can tap customers it couldn't reach with its direct sales model.
The new firm will also be able to bundle local and long distance telephone services to customers as part of equipment sales, the company said. To date, Lucent's sales force was barred from selling those services because of its separation agreement with AT&T.
Mandl, who will be CEO of the new firm, is currently president and CEO of Newcourt Communications Finance, which manages the global financing program that serves Lucent's Business Communications Systems customers.
She was a former sales and services division vice president of Lucent's Business Communications Systems group, as well as vice president of the group's International division. Lewis Hay III, former executive vice president and chief financial officer at U.S. Food Service, will serve as president of Mandl's new firm.