The Bloor Perspective: Alcatel's IP push, IR35's effect on corporate finances, and the demise of Mondex

Alcatel's $7.1bn acquisition of Newbridge Networks last week adds a much-needed component to the Alcatel portfolio, namely presence in the Internetworking market. Not that Alcatel lacked products in this space, however it has lacked what you might call 'IP mindshare'.

All this looks set to change with the acquisition which will enable Alcatel to go up against the giants of "new generation networks", namely Lucent, Nortel Networks and Cisco. Alcatel should not be underestimated as a communications equipment provider. Its greatest strength lies in the breadth of the products and services it offers: for example, in 1999 it carried 35 per cent of the worldwide ADSL market - a share that increases to 52 per cent in North America. It has major stakes in wireless and satellite communications, not to mention terrestrial and submarine cabling, and all of this puts the company in an ideal position to appreciate the nature of convergence - data availability any time, anywhere and across any medium.

Alcatel is well placed to provide end-to-end solutions in ways that few other companies can. The company provides mobile phones, ADSL cards, set-top box chipsets at the client side, plus access systems for all of these devices and more, along with the underlying global connectivity. Perhaps Lucent can come closest to this soup-to-nuts vision, but even if this is the case, Alcatel remains one to watch.

* IR35: A taxing problem *

An IT contractor's best friend is often his tax advisor. This is for good reason as there have traditionally been many ways for them to minimise their tax liability. One loophole in particular has allowed them to avoid incurring National Insurance costs by paying themselves in share dividends rather than salary. This is the prime target for the new IR35 reform plan due to be introduced by the Inland Revenue (IR) in April. The plan is described in an IR press release as "anti-avoidance legislation on the provision of services through intermediaries such as personal service companies".

What this boils down to is that contractors working on long term engagements (greater than a month) are to be classed as employees for tax purposes. The IR observes that contract staff are usually indistinguishable from permanent staff in terms of the jobs they do. And these are not just technical specialists we are talking about. It is surprising how many senior IT managers, and in some cases directors, are actually working on contract.

The IR now puts the onus on freelancers to demonstrate that an engagement has the "characteristics of self-employment" if it is to be exempt from IR35 regulation. This will close the National Insurance loophole very effectively and lead to more visibility through PAYE. Recent IR guidelines suggest that it will also make it more difficult for contractors to offset training costs against their tax bill.

Many contractors measure time in pounds and pence rather than hours and minutes like the rest of us. Time is money and money is the objective. So with this mentality, what will happen when their work related overheads suddenly increase? It doesn't take much to work out that contractors with rare skill-sets will almost certainly try to bump up their rates to compensate and it will be businesses that foot the bill - although some contractors may go back into permanent employment.

Whether we like it or not, contract staff play an important role in this new Internet economy as it's not possible for many companies to keep highly paid specialists on the payroll permanently. The likely net effect of IR35 therefore is to raise the cost of companies becoming competitive - unless the tax consultants can find some loopholes.

* A not-so-smart smartcard scheme *

All eyes were on Swindon five years ago when Mondex and Mastercard chose this average British town as a laboratory for its electronic cash experiment. The system deployed was based on smartcard technology with a high security operating system known as MULTOS at its foundation. In addition to eCash, MULTOS was designed to allow the use of smartcards for voting, loyalty schemes, club membership control and so on. Smartcards were the future and Swindon was privileged to be at the leading edge of technology advancement.

This week, a spokeswoman for Mondex is reported to have said that the Swindon experiment is "best forgotten". And similarly with a project started three years ago in Leeds by Visa International. Neither managed to show any obvious benefits. The credit card companies haven't given up, however, but rather they've turned their attention to other ventures like mobile phone based initiatives with Cellnet and Nokia.

The general idea is that the function of the smartcard is now replaced by the logic on the card inside the phone. Having full communication ability makes the whole scheme much more flexible though. Cash could, of course, be stored on the phone itself and transferred to an EPOS system on demand when payment was required. However, secure three way wireless communication between the EPOS system, the mobile phone and the bank means that the customer could settle their bill directly from their bank account.

All of this is perfectly possible with the technology that is emerging in the mobile arena. But there are some challenges to be overcome. The first is building the back-end infrastructure to allow real-time cash transfers of relatively small amounts to take place. The second is everyone agreeing on the communications standards that will be used. Nevertheless, it is clear that the future of personal electronic payment systems probably lies with the mobile phone rather than the ill-fated smart card.

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