Facing a difficult market, telecom equipment giant Alcatel-Lucent on Tuesday said that CEO Pat Russo and Chairman Serge Tchuruk will step down, and the company will begin the process of changing the size and composition of its board.

Ms. Russo will depart by the end of the year, the company said, while Mr. Tchuruk will exit the Paris-based firm by October 1, 2008.

A leadership change was not a surprise since the company has not met many of the goals set by Ms. Russo and Mr. Tchuruk in 2006 when telecom equipment leaders Alcatel and Lucent merged.

Instead the merged company lost market share in sectors where it was once dominant, and on the day of its executive shakeup, the company reported a net loss of $1.73 billion in the quarter that ended June 30, almost double the loss of $913 million a year earlier.

The company, which in February posted a $3.74 billion fourth quarter loss, and took a $3 billion write-down on its critical U.S. wireless business, has reported six consecutive losing quarters.

“The management had a fair amount of time to right the ship so this was not unexpected,” said Joe Nordgaard, director of wireless consulting firm Spectral Advantage. “Although there are many signs of weakness in the economy, there is still strength in the telecom sector which an Alcatel-Lucent should be pursuing.”

There has been unprecedented consolidation in the telecommunications market, particularly among carriers, and that has shrunk the number of companies in the industry's target market. But Alcatel-Lucent, with its combined size and reputation, was expected to prosper in a climate where carriers invariably reward size, stability, and reputation.

Both Ms. Russo and Mr. Tchuruk argued that cost savings from the elimination of redundancies would make the merged company stronger and better able to compete on price with firms such as China's Huawei, and Sweden's Ericsson.

That has not happened, in part because of the makeup of Alcatel-Lucent's market.

“While Ericsson can focus on Europe as its primary market and Huawei can focus to a large extent on China and other fast growing markets, Alcatel-Lucent has a large legacy fixed-line business in slower moving parts of the world such as Africa,” said Moe Tanabian, a principal at IBB Consulting.

Alcatel-Lucent's diverse product portfolio also made it difficult for the company to focus on the more profitable parts of its market, he said.

“There are all kinds of transitions taking place in the telecom market from fiber to mobile, from DSL to cable. Some carriers are growing while others are in distress,” Mr. Nordgaard said. “Look at the numbers being posted by Verizon.”

Mr. Nordgaard believes that Alcatel-Lucent has not taken full advantage its market opportunities particularly in the fast growing Chinese market, where leadership, vision, finesse, and political sophistication are required for success.

The company said it will immediately begin the search for a new chairman and CEO and new board members with strong industry expertise.