Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. IFRS, as adopted by the European Union, differs in certain respects from the International Financial Reporting Standards issued by the International Accounting Standards Board. However, our consolidated financial statements presented in this document in accordance with IFRS would be no different if we had applied International Financial Reporting Standards issued by the International Accounting Standards Board. As permitted by U.S. securities laws, we no longer provide a reconciliation of our net income and shareholders’ equity as reflected in our consolidated financial statements to U.S. GAAP.

On November 30, 2006, historical Alcatel and Lucent Technologies Inc., since renamed Alcatel-Lucent USA Inc. (“Lucent”), completed a business combination pursuant to which Lucent became a wholly owned subsidiary of Alcatel.

As a result of the purchase accounting treatment of the Lucent business combination required by IFRS, our results for 2011, 2010, 2009, 2008 and 2007 included several negative, non-cash impacts of purchase accounting entries.

On October 19, 2011, Alcatel-Lucent announced that it had received a binding offer of U.S. $ 1.5 billion from a company owned by the Permira funds for the acquisition of its Genesys business. The closing of the deal was completed on February 1, 2012. As a result of this transaction, our 2011, 2010, 2009, 2008 and 2007 financial results pertaining to the Genesys business are treated as discontinued operations.

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SELECTED FINANCIAL DATA

1.1 CONDENSED CONSOLIDATED INCOME STATEMENT AND STATEMENT OF FINANCIAL POSITION DATA

The table below shows the average noon buying rate of euro for each year from 2007 to 2011. As used in this document, the term “noon buying rate” refers to the rate of exchange for the euro, expressed in U.S. dollars per euro, as certified by the Federal Reserve Bank of New York for customs purposes.

The table below shows the high and low noon buying rates expressed in U.S. dollars per euro for the previous six months.

On March 16, 2012, the noon buying rate was €1.00 = U.S.$1.3171.

1

SELECTED FINANCIAL DATA

1.2 EXCHANGE RATE INFORMATION

2

ACTIVITY OVERVIEW

2.1 NETWORKS SEGMENT

2

ACTIVITY OVERVIEW

2.3 ENTERPRISE

Our business, financial condition or results of operations could suffer material adverse effects due to any of the following risks. We have described the specific risks that we consider material to our business but the risks described below are not the only ones we face. We do not discuss risks that would

generally be equally applicable to companies in other industries, due to the general state of the economy or the markets, or other factors. Additional risks not known to us or that we now consider immaterial may also impair our business operations.

We adopted a new strategic focus in 2009, shifting our resources to support that focus. If our strategic plan is not aligned with the direction our customers take as they invest in the evolution of their networks, customers may not buy our products or use our services.

We adopted a new strategic plan as of January 1, 2009, when we initiated a strategic transformation and realignment of our operations in support of that plan. The transformation includes a change in the composition of our spending on research and development as we accelerate the shift in our investments from mature technologies that previously generated significant revenue for us toward certain next-generation technologies. Our choices of specific technologies to pursue and those to de-emphasize may prove to be inconsistent with our customers’ investment spending.

The telecommunications industry fluctuates and is affected by many factors, including the economic environment, decisions by service providers and other customers that buy our products and services regarding their deployment of technology and their timing of purchases and roll-out, as well as demand and spending for communications services by businesses and consumers.

Spending trends in the global telecommunications industry were mixed in 2011 where the surge in smartphone penetration, mobile data and all-IP network transformation led to increased spending in wireless and IP while the macroeconomic environment and political unrest in some regions, negatively impacted spending. Overall uncertain economic conditions should prevail in 2012. Actual market conditions could be very different from what we expect and are planning for due to the uncertainty that exists about the strength of the recovery in the global economy. Moreover, market conditions could vary geographically and across different technologies, and are subject to substantial fluctuations. Conditions in the specific industry segments in which we participate may be weaker than in other segments. In that case, the results of our operations may be adversely affected.

If capital investment by service providers and other customers that buy our products and services is weaker than we anticipate, our revenues and profitability may be adversely affected. The level of demand by service providers and other customers that buy our products and services can change quickly and can vary over short periods of time, including

from month to month. As a result of the uncertainty and variations in the telecommunications industry, accurately forecasting revenues, results and cash flow remains difficult.

In addition, our sales volume as well as product and geographic mix will affect our gross margin. Therefore, if reduced demand for our products results in lower than expected sales volume, or if we have an unfavorable product or geographic mix, we may not achieve the expected gross margin rate, resulting in lower than expected profitability. These factors may fluctuate from quarter to quarter.

Our business requires a significant amount of cash, and we may require additional sources of funds if our sources of liquidity are unavailable or insufficient to fund our operations.

Our working capital requirements and cash flows have historically been, and they are expected to continue to be, subject to quarterly and yearly fluctuations, depending on a number of factors. If we are unable to manage fluctuations in cash flow, our business, operating results and financial condition may be materially adversely affected. Factors which could lead us to suffer cash flow fluctuations include:

We derive our capital resources from a variety of sources, including the generation of positive cash flow from on-going operations, the issuance of debt and equity in various forms, and banking facilities, including our revolving credit facility of €1.4 billion maturing in April 2012 (with an extension until April 5, 2013 for an amount of €837 million) and on which we have not drawn. Our ability to draw upon these resources is dependent upon a variety of factors, including our customers’ ability to make payments on outstanding accounts receivable; the perception of our credit quality by lenders and investors; our ability to meet the financial covenant for our revolving credit facility; and debt and equity market conditions generally. Given current conditions, access to the debt and equity markets may not be relied upon at any time. Based on our current view of our business and capital resources and the overall market environment, we believe we have sufficient

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RISK FACTORS

3.1 RISKS RELATING TO THE BUSINESS

resources to fund our operations. If, however, the business environment were to materially worsen, or the credit markets were to limit our access to bid and performance bonds, or our customers were to dramatically pull back on their spending plans, our liquidity situation could deteriorate. If we cannot generate sufficient cash flow from operations to meet cash requirements in excess of our current expectations, we might be required to obtain supplemental funds through additional operating improvements or through external sources, such as capital market proceeds, asset sales or financing from third parties. We cannot provide any assurance that such funding will be available on terms satisfactory to us. If we were to incur high levels of debt, this would require a larger portion of our operating cash flow to be used to pay principal and interest on our indebtedness. The increased use of cash to pay indebtedness could leave us with insufficient funds to finance our operating activities, such as Research and Development expenses and capital expenditures, which could have a material adverse effect on our business.

Our ability to have access to the capital markets and our financing costs will be, in part, dependent on Standard & Poor’s, Moody’s or similar agencies’ ratings with respect to our debt and corporate credit and their outlook with respect to our business. Our current short-term and long-term credit ratings, as well as any possible future lowering of our ratings, may result in higher financing costs and reduced access to the capital markets. We cannot provide any assurance that our credit ratings will be sufficient to give us access to the capital markets on acceptable terms, or that once obtained, such credit ratings will not be reduced by Standard & Poor’s, Moody’s or similar rating agencies.

Credit and commercial risks and exposures could increase if the financial condition of our customers declines.

A substantial portion of our sales are to customers in the telecommunications industry. Some of these customers require their suppliers to provide extended payment terms, direct loans or other forms of financial support as a condition to obtaining commercial contracts. We have provided and in the future we expect that we will provide or commit to financing where appropriate for our business. Our ability to arrange or provide financing for our customers will depend on a number of factors, including our credit rating; our level of available credit; and our ability to sell off commitments on acceptable terms. More generally, we expect to routinely enter into long-term contracts involving significant amounts to be paid by our customers over time. Pursuant to these contracts, we may deliver products and services representing an important portion of the contract price before receiving any significant payment from the customer. As a result of the financing that may be provided to customers and our commercial risk exposure under long-term contracts, our business could be adversely affected if the financial condition of our customers erodes. Over the past few years, certain of our customers have sought protection under the bankruptcy or reorganization laws of the applicable jurisdiction, or have experienced financial difficulties. Similar to 2010, in 2011 there appeared to be fewer instances where our customers experienced such difficulties. We cannot predict how that situation may evolve in 2012, when we expect uncertain economic conditions to continue. Upon the financial failure of a customer, we may experience losses on credit extended and

loans made to such customer, losses relating to our commercial risk exposure, and the loss of the customer’s ongoing business. If customers fail to meet their obligations to us, we may experience reduced cash flows and losses in excess of reserves, which could materially adversely impact our results of operations and financial position.

The Group’s U.S. pension and post-retirement benefit plans are large and have funding requirements that fluctuate based on how their assets are invested, the performance of financial markets worldwide, interest rates, medical price increases, and changes in legal requirements. These plans are costly, and our efforts to fund or control these costs may be ineffective.

Many former and current employees and retirees of the Group in the U.S. participate in one or more of our major defined benefit plans that provide post-retirement pension, healthcare, and group life benefits.

Volatility in discount rates and asset values will affect the funded status of our pension plans.

For purposes of calculating our funding requirements for our U.S. pension plans, the U.S. Internal Revenue Service provides a number of methods to use for measuring plan assets and for determining the discount rate to be applied. For measuring plan assets, we can choose between the fair market value at the valuation date or a smoothed fair value of assets (based on a prior period of time not to exceed two years, with the valuation date as the last date in the prior period). For determining the discount rate, we can opt for the spot discount rate at the valuation date (effectively, the average yield curve of the daily rates for the month preceding the valuation date) or a 24-month average of the rates for each time segment (any 24-month period as long as the 24-month period ends no later than five months before the valuation date). To measure the 2010 funding valuation, we selected the 2-year asset fair value smoothing method for the U.S. Management and U.S. Occupational Pension plans, and the 24-month average of the rates for each time segment for the month ended September 30, 2009 for the U.S. Management Pension plan and the 24-month average of the rates for each time segment for the month ending December 31, 2009 for the U.S. Occupational Pension plans. As a result of these choices, we will not have to make any funding contributions for both the 2010 and 2011 funding valuations (i.e. no contribution contemplated through at least 2013). With a few exceptions, we will be required to use these same methods for future funding valuations. We cannot assure you that the asset valuation and discount rate methodologies selected for the 2011 funding valuation will not result in required contributions after 2013.

Pension and post-retirement health plan participants may live longer than has been assumed, which would result in an increase in our benefit obligation.

For pension funding purposes, we use the mortality table issued by the Internal Revenue Service (IRS) which includes fifteen years of projected improvements in life span for active and former employees not yet receiving pension payments, and seven years for retirees receiving payments. This table determines the period of time over which we assume that benefit payments will be made. The longer the period, the larger the benefit obligation and the amount of assets required to cover that obligation. To estimate our future U.S. retiree healthcare plan obligations and for accounting purposes, we use the RP2000 Combined Health Mortality table with Generational Projection based on the U.S. Society of Actuaries Scale AA. As with pension benefits, longer lives of our participants would likely increase our retiree healthcare benefit obligation. We cannot be certain that the longevity of our participants in our retiree healthcare plans or pension plans will not exceed that indicated by the mortality table we currently use, or that future updates to these tables will not reflect materially longer life expectancies.

We may not be able to fund the healthcare costs of our formerly represented retirees with excess pension assets in accordance with Section 420 of the U.S. Internal Revenue Code.

We expect to fund our current healthcare costs for retirees who were represented by the Communications Workers of America and the International Brotherhood of Electrical Workers with transfers of excess pension assets from our Occupational – inactive pension plan in which these retirees are participants. Excess assets are defined by Section 420 of the U.S. Internal Revenue Code (the “Code”) as being those assets in excess of either 120% or 125% of the plan’s funding obligation, depending on the type of transfer selected. Excess assets are a function of the funded status of the specific plan involved. The provisions of Section 420 of the Code expire on December 31, 2013; however, Section 420 has been extended by Congress three times in the past. We can make no assurances that the Section 420 of the Code will be extended beyond December 31, 2013. Further, we can make no assurances that sufficient excess assets will be available for future transfers to cover all future healthcare costs beyond 2013 for these specific retirees.

Healthcare cost increases and an increase in the use of services may significantly increase our retiree healthcare costs.

Our current healthcare plans cap the subsidy we provide to those persons who retired after February 1990 and all future retirees, representing almost half of the retiree healthcare obligation, on a per capita basis. We may take steps in the future to reduce the overall cost of our current retiree healthcare plans, and the share of the cost borne by us, consistent with legal requirements and any collective bargaining obligations. However, cost increases may exceed our ability to reduce these costs. In addition, the reduction or elimination of U.S. retiree healthcare benefits by us has led to lawsuits against us. Any initiatives we undertake to control these costs may lead to additional claims against us.

Our financial condition and results of operations may be harmed if we do not successfully reduce market risks through the use of derivative financial instruments.

Since we conduct operations throughout the world, a substantial portion of our assets, liabilities, revenues and expenses are denominated in various currencies other than the euro and the U.S. dollar. Because our financial statements are denominated in euros, fluctuations in currency exchange rates, especially the U.S. dollar, or currencies linked to the U.S. dollar, against the euro, could have a material impact on our reported results.

We also experience other market risks, including changes in interest rates and in prices of marketable equity securities that we own. We may use derivative financial instruments to reduce certain of these risks. If our strategies to reduce market risks are not successful, our financial condition and operating results may be harmed.

An impairment of other intangible assets or goodwill would adversely affect our financial condition or results of operations.

We have a significant amount of goodwill and intangible assets, including acquired intangibles, development costs for software to be sold, leased or otherwise marketed and internal use software development costs as of December 31, 2011. In connection with the combination between Alcatel and Lucent, a significant amount of additional goodwill and acquired intangible assets were recorded as a result of the purchase price allocation.

Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment annually, or more often, if an event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events such as product discontinuances, plant closures, product dispositions or other changes in circumstances indicate that the carrying amount may not be wholly recoverable.

Historically, we have recognized significant impairment charges due to various reasons, including some of those noted above as well as potential restructuring actions or adverse market conditions that are either specific to us or the broader telecommunications industry or more general in nature. For instance, we accounted for an impairment loss of €4.7 billion in 2008 related to a re-assessment of our near-term outlook, our decision to streamline our portfolio and our weaker than expected CDMA business.

Additional impairment charges may be incurred in the future that could be significant and that could have an adverse effect on our results of operations or financial condition. For example, in 2011 we performed an additional impairment test as of December 31, 2011, and the difference between the recoverable value and the carrying value of the net assets as of that date of our Wireline Networks Product Division was only slightly positive. Any material unfavorable change in any of the key assumptions used to determine the recoverable value of this Product Division could therefore cause us to have to account for an impairment charge in the future.

3

RISK FACTORS

3.1 RISKS RELATING TO THE BUSINESS

We operate in a highly competitive industry with many participants. Our failure to compete effectively would harm our business.

We operate in a highly competitive environment in each of our businesses, competing on the basis of product offerings, technical capabilities, quality, service and pricing. Competition for new service provider and enterprise customers as well as for new infrastructure deployments is particularly intense and increasingly focused on price. We offer customers and prospective customers many benefits in addition to competitive pricing, including strong support and integrated services for quality, technologically-advanced products; however, in some situations, we may not be able to compete effectively if purchasing decisions are based solely on the lowest price.

We have a number of competitors, many of which currently compete with us and some of which are very large, with substantial technological and financial resources and established relationships with global service providers. Some of these competitors have very low cost structures. In addition, new competitors may enter the industry as a result of acquisitions or shifts in technology. These new competitors, as well as existing competitors, may include entrants from the telecommunications, computer software, computer services and data networking industries. We cannot assure you that we will be able to compete successfully with these companies. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or other incentives that we cannot or will not match or offer. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to customers, prospective customers, employees and strategic partners.

Technology drives our products and services. If we fail to keep pace with technological advances in the industry, or if we pursue technologies that do not become commercially accepted, customers may not buy our products or use our services.

The telecommunications industry uses numerous and varied technologies and large service providers often invest in several and, sometimes, incompatible technologies. The industry also demands frequent and, at times, significant technology upgrades. Furthermore, enhancing our services revenues requires that we develop and maintain leading tools. We will not have the resources to invest in all of these existing and potential technologies. As a result, we concentrate our resources on those technologies that we believe have or will achieve substantial customer acceptance and in which we will have appropriate technical expertise. However, existing products often have short product life cycles characterized by declining prices over their lives. In addition, our choices for developing technologies may prove incorrect if customers do not adopt the products that we develop or if those technologies ultimately prove to be unviable. Our revenues and operating results will depend, to a significant extent, on our ability to maintain a product portfolio and service capability that is attractive to our customers; to enhance our existing products; to continue to introduce new products successfully and on a timely basis and to develop new or enhance existing tools for our services offerings.

The development of new technologies remains a significant risk to us, due to the efforts that we still need to make to achieve

technological feasibility; due – as mentioned above – to rapidly changing customer markets; and due to significant competitive threats.

Our failure to bring these products to market in a timely manner could result in a loss of market share or a lost opportunity to capitalize on new markets for emerging technologies, and could have a material adverse impact on our business and operating results.

We depend on a limited number of internal and external manufacturing organizations, distribution centers and suppliers. Their failure to deliver or to perform according to our requirements may adversely affect our ability to deliver our products, services and solutions on time and in sufficient volume, while meeting our quality, safety or security standards.

Our manufacturing strategy is built upon two primary sources of production: internal manufacturing locations and external manufacturing suppliers. The manufacturing equipment and common and custom-made test equipment in our internal manufacturing locations are owned by us. When we resort to external manufacturing, the primary owner of inventory, standard manufacturing equipment and common test equipment is the external manufacturer, but in the vast majority of cases we own the custom-made test equipment, which would allow us to change manufacturing locations more easily if this became necessary.

Our business continuity plans also involve the implementation of a regional sourcing strategy where economically feasible, to ensure there is a supply chain to support and optimize our supply and delivery within the given region. For both our internal and external manufacturing locations such plans include the capability to move to alternate locations for production in case of a disruption at a given facility. In addition, we perform audits in all facilities, internal and external, to identify the actions required to reduce our overall business disruption risk.

However, despite the above measures, we may not be able to mitigate entirely the disruption risks for all of our products and, depending on the nature of the disruptive event, we may be required to prioritize our manufacturing and as a result, the supply of some of our products may be more affected than that of others.

Sourcing strategies are developed and updated annually to identify primary technologies and supply sources used in the selection of purchased components, finished goods, services and solutions. We multisource a large number of component and material families that are standard for the industry to the largest extent possible. For a number of components and finished goods families, we use multiple, predefined sources which allow us to have access to additional inventories in case of a disruptive event or to satisfy increased end customer demand. On the other hand, supply chain risks may arise with respect to components that are single-sourced or that have a long lead-time for a variety of reasons, such as non-forecasted upside demand, discontinuance by the supplier, quality problems, etc, that may have an adverse impact on our ability to deliver our products. In addition, for certain specific parts, an alternative source may not be technologically feasible.

Despite the steps we have taken with respect to our manufacturing and sourcing strategies, our business continuity plans and our logistics network, we can provide no assurance that such steps will be sufficient to avoid any disruption in the various stages of our supply chain. A disruption in any of those stages may materially adversely affect our ability to deliver our products, services and solutions on time and in sufficient volume, while meeting our quality, safety or security standards.

Information system risks, data protection breaches, cyber-attacks and industrial espionage may result in unauthorized access to or modification of, misappropriation or loss of our intellectual property and confidential information that we own or that has been entrusted to us, as well as interruptions to the availability of our systems or the systems that we manage for third parties.

Valuable intellectual property essential to our business operations and competitiveness, as well as other confidential and proprietary information (our own and that of customers, suppliers and other third parties including our customers’ end customers) are stored in or accessible through our information systems, a large part of which is managed by a third party to whom we have outsourced a significant portion of our IT operations, as well as the network and information systems that we manage for or sell to third parties or for whose security and reliability we may otherwise be accountable. Unauthorized access to or modification of, misappropriation or loss of such information could have a material adverse effect on our business and results of operations.

Unauthorized third parties have targeted our information systems, using sophisticated attempts, referred to as advanced persistent threats, “phishing” and other attacks. We believe that such attempts to access our information systems have on one or more occasions been successful. We are taking corrective actions that we believe will substantially mitigate the risk that such attacks will materially impact our business or operations. We cannot rule out that there may have been other cyber attacks that have been successful and/or that have not been detected. Our business is also vulnerable to theft, fraud, trickery or other forms of deception, sabotage and intentional acts of vandalism by third parties as well as employees.

We have procedures in place for responding to known or suspected data breaches. In addition, we conduct periodic assessments of our system vulnerabilities and the effectiveness of our security protections and have undertaken and will continue to undertake information security improvement programs internally for our systems and with our suppliers and business partners. However, there is no guarantee that our existing procedures or the improvement programs will be sufficient to prevent future security breaches or cyber attacks. In addition, as we have outsourced a significant portion of our information technology operations, we are also subject to vulnerabilities attributable to such third parties. Information technology is rapidly evolving, the

techniques used to obtain unauthorized access or sabotage systems change frequently and the parties behind cyber attacks and other industrial espionage are believed to be sophisticated and well funded, and it is not commercially or technically feasible to mitigate all known vulnerabilities in a timely manner or to eliminate all risk of cyber attacks and data breaches. Unauthorized access to or modification of, misappropriation or loss of our intellectual property and confidential information could result in litigation and potential liability to customers, suppliers and other third parties, harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives or damage our brand and reputation, which could materially adversely affect our business, results of operations or financial condition.

In addition, the cost and operational consequences of implementing further information system protection measures could be significant. We may not be successful in implementing such measures, which could cause business disruptions and be more expensive, time consuming and resource-intensive. Such disruptions could adversely impact our business.

We have outsourced a significant portion of our information technology (IT) systems and infrastructure, increasing our dependence on the reliability of external companies. Interruptions in the availability of the IT systems and infrastructure we rely upon could have material adverse effects on our operations.

Our business operations rely on complex IT systems, networks and other related infrastructure. We have outsourced a significant portion of our IT operations, increasing our reliance on the precautions taken by external companies to insure the reliability of those operations. Despite these precautions, IT operations, including those we have outsourced as well as those we manage ourselves, are susceptible to disruption from equipment failure, vandalism, natural disasters, power outages and other events. Although we have selected reputable companies to provide outsourced IT services, and have worked closely with them to identify risks and implement countermeasures and controls, we cannot be sure that interruptions will not occur in the availability of the IT services upon which we rely, with material adverse effects on our operations.

Many of our current and planned products are highly complex and may contain defects or errors that are detected only after deployment in telecommunications networks. If that occurs, our reputation may be harmed.

Our products are highly complex, and we cannot assure you that our extensive product development, manufacturing and integration testing is, or will be, adequate to detect all defects, errors, failures and quality issues that could affect customer satisfaction or result in claims against us. As a result, we might have to replace certain components and/or provide remediation in response to the discovery of defects in products that have been shipped.

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RISK FACTORS

3.1 RISKS RELATING TO THE BUSINESS

The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by customers or customers’ end users and other losses to us or to our customers or end users. These occurrences could also result in the loss of or delay in market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability.

Rapid changes to existing regulations or technical standards or the implementation of new regulations or technical standards for products and services not previously regulated could be disruptive, time-consuming and costly to us.

We develop many of our products and services based on existing regulations and technical standards, our interpretation of unfinished technical standards or the lack of such regulations and standards. Changes to existing regulations and technical standards, or the implementation of new regulations and technical standards relating to products and services not previously regulated, could adversely affect our development efforts by increasing compliance costs and causing delay. Demand for those products and services could also decline.

Our ten largest customers accounted for 43% of our revenues in 2011 (among which Verizon and AT&T represented 12% and 10% of our revenues, respectively), and most of our revenues come from telecommunications service providers. The loss of one or more key customers or reduced spending by these service providers could significantly reduce our revenues, profitability and cash flow.

Our ten largest customers accounted for 43% of our revenues in 2011 (among which Verizon and AT&T represented 12% and 10% of our revenues, respectively). As service providers increase in size, it is possible that an even greater portion of our revenues will be attributable to a smaller number of large service providers going forward. Our existing customers are typically not obligated to purchase a fixed amount of products or services over any period of time from us and may have the right to reduce, delay or even cancel previous orders. We, therefore, have difficulty projecting future revenues from existing customers with certainty. Although historically our customers have not made sudden supplier changes, our customers could vary their purchases from period to period, even significantly. Combined with our reliance on a small number of large customers, this could have an adverse effect on our revenues, profitability and cash flow. In addition, our concentration of business in the telecommunications service provider industry makes us extremely vulnerable to a downturn in spending in that industry.

We have long-term sales agreements with a number of our customers. Some of these agreements may prove unprofitable as our costs and product mix shift over the lives of the agreements.

We have entered into long-term sales agreements with a number of our large customers, and we expect that we will continue to enter into long-term sales agreements in the future. Some of these existing sales agreements require us to

sell products and services at fixed prices over the lives of the agreements, and some require, or may in the future require us to sell products and services that we would otherwise discontinue, thereby diverting our resources from developing more profitable or strategically important products. Since our strategic plan entails a streamlined set of product offerings, it may increase the likelihood that we may have to sell products that we would otherwise discontinue. The costs incurred in fulfilling some of these sales agreements may vary substantially from our initial cost estimates. Any cost overruns that cannot be passed on to customers could adversely affect our results of operations.

We have significant international operations and a significant amount of our revenues is earned in emerging markets and regions.

In addition to the currency risks described elsewhere in this section, our international operations are subject to a variety of risks arising out of the economy, the political outlook and the language and cultural barriers in countries where we have operations or do business. We expect to continue to focus on expanding business in emerging markets in Asia, Africa, Latin America and Eastern Europe. In many of these emerging markets, we may be faced with several risks that are more significant than in other countries. These risks include economies that may be dependent on only a few products and are therefore subject to significant fluctuations, weak legal systems which may affect our ability to enforce contractual rights, possible exchange controls, unstable governments, privatization actions or other government actions affecting the flow of goods and currency. Also, it is possible that political developments in certain countries, similar to those in the Middle East and North Africa in 2011, may have, at least temporarily, a negative impact on our operations in those countries.

The activities of our Optics division include the installation and maintenance of undersea telecommunications cable networks, and in the course of this activity we may cause damage to existing undersea infrastructure, for which we may ultimately be held responsible.

Our subsidiary Alcatel-Lucent Submarine Networks is an industry leader in the supply of submarine optical fiber cable networks linking mainland to islands, island to island or several points along a coast, with activities now expanding to the supply of broadband infrastructure to oil and gas platforms, sea wind-farms and other offshore installations. Although thorough surveys, permit processes and safety procedures are implemented during the planning and deployment phases of all of these activities, there is a risk that previously-laid infrastructure, such as electric cables or oil pipelines, may go undetected despite such precautions, and be damaged during the process of laying the telecommunications cable, potentially causing business interruption to third parties operating in the same area and/or accidental pollution. While we have in place contractual limitations and maintain insurance coverage to limit our exposure, we can provide no assurance that these protections will be sufficient to cover fully such exposure.

We are involved in lawsuits and investigations which, if determined against us, could require us to pay substantial damages, fines and/or penalties.

We are defendants in various lawsuits. These lawsuits against us include such matters as commercial disputes, claims regarding intellectual property, customer financing, product discontinuance, asbestos claims, labor, employment and benefit claims and others. We are also involved in certain investigations by government authorities. For a discussion of some of these legal proceedings and investigations, you should read “Legal Matters” in Section 6.10 of this annual report and Note 35 to our consolidated financial statements included elsewhere in this document. We cannot predict the extent to which any of the pending or future actions will be resolved in our favor, or whether significant monetary judgments will be rendered against us. Any material damages resulting from these lawsuits and investigations could adversely affect our profitability and cash flow.

If we fail to protect our intellectual property rights, our business and prospects may be harmed.

Intellectual property rights, such as patents, are vital to our business and developing new products and technologies that are unique is critical to our success. We have numerous French, U.S. and foreign patents and numerous pending patents. However, we cannot predict whether any patents, issued or pending, will provide us with any competitive advantage or whether such patents will be challenged by third parties. Moreover, our competitors may already have applied for patents that, once issued, could prevail over our patent rights or otherwise limit our ability to sell our products. Our competitors also may attempt to design around our patents or copy or otherwise obtain and use our proprietary technology. In addition, patent applications currently pending may not be granted. If we do not receive the patents that we seek or if other problems arise with our intellectual property, our competitiveness could be significantly impaired, which would limit our future revenues and harm our prospects.

We are subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling certain products.

From time to time, we receive notices or claims from third parties of potential infringement in connection with products or software. We also may receive such notices or claims when we attempt to license our intellectual property to others.

Intellectual property litigation can be costly and time-consuming and can divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. A successful claim by a third party of patent or other intellectual property infringement by us could compel us to enter into costly royalty or license agreements or force us to pay significant damages and could even require us to stop selling certain products. Further, if one of our important patents or other intellectual property rights is invalidated, we may suffer losses of licensing revenues and be prevented from attempting to block others, including competitors, from using the related technology.

We are involved in significant joint ventures and are exposed to problems inherent to companies under joint management.

We are involved in significant joint venture companies. The related joint venture agreements may require unanimous consent or the affirmative vote of a qualified majority of the shareholders to take certain actions, thereby possibly slowing down the decision-making process. Our largest joint venture, Alcatel-Lucent Shanghai Bell Co., Ltd, has this type of requirement. We own 50% plus one share of Alcatel-Lucent Shanghai Bell Co., Ltd, the remainder being owned by the Chinese government.

We are subject to environmental, health and safety laws that restrict our operations.

Our operations are subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal and clean up of, and human exposure to, hazardous substances. In the United States, these laws often require parties to fund remedial action regardless of fault. Although we believe our aggregate reserves are adequate to cover our environmental liabilities, factors such as the discovery of additional contaminants, the extent of required remediation and the imposition of additional cleanup obligations could cause our capital expenditures and other expenses relating to remediation activities to exceed the amount reflected in our environmental reserves and adversely affect our results of operations and cash flows. Compliance with existing or future environmental, health and safety laws could subject us to future liabilities, cause the suspension of production, restrict our ability to utilize facilities or require us to acquire costly pollution control equipment or incur other significant expenses.

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RISK FACTORS

3.3 RISKS RELATING TO OWNERSHIP OF OUR ADSs

The trading price of our ADSs may be affected by fluctuations in the exchange rate for converting euro into U.S. dollars.

Fluctuations in the exchange rate for converting euro into U.S. dollars may affect the market price of our ADSs.

If a holder of our ADSs fails to comply with the legal notification requirements upon reaching certain ownership thresholds under French law or our governing documents, the holder could be deprived of some or all of the holder’s voting rights and be subject to a fine.

French law and our governing documents require any person who owns our outstanding shares or voting rights in excess of certain amounts specified in the law or our governing documents to file a report with us upon crossing this threshold percentage and, in certain circumstances, with the French stock exchange regulator (Autorité des Marchés Financiers).

If any shareholder fails to comply with the notification requirements:

Holders of our ADSs will have limited recourse if we or the depositary fail to meet obligations under the deposit agreement between us and the depositary.

The deposit agreement expressly limits our obligations and liability and the obligations and liability of the depositary.

Neither we nor the depositary will be liable despite the fact that an ADS holder may have incurred losses if the depositary:

This means that there could be instances where holders of an ADS would not be able to recover losses that you may have suffered by reason of our actions or inactions or the actions or inactions of the depositary pursuant to the deposit agreement.

In addition, the depositary has no obligation to participate in any action, suit or other proceeding in respect of our ADSs unless we provide the depositary with indemnification that it determines to be satisfactory.

We are subject to different corporate disclosure standards that may limit the information available to holders of our ADSs.

As a foreign private issuer, we are not required to comply with the notice and disclosure requirements under the Securities Exchange Act of 1934, as amended, relating to the solicitation of proxies for shareholder meetings. Although we are subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of non-U.S. issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Therefore, there may be less publicly available information about us than is regularly published by or about most other public companies in the United States.

Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the United States in French courts, may not be enforceable against us.

An investor located in the United States may find it difficult to:

Preemptive rights may not be available for U.S. persons.

Under French law, shareholders have preemptive rights to subscribe for cash issuances of new shares or other securities giving rights to acquire additional shares on a pro rata basis. U.S. holders of our ADSs or ordinary shares may not be able to exercise preemptive rights for their shares unless a registration statement under the Securities Act of 1933 is effective with respect to such rights or an exemption from the registration requirements imposed by the Securities Act is available.

We may, from time to time, issue new shares or other securities giving rights to acquire additional shares at a time when no registration statement is in effect and no Securities Act exemption is available. If so, U.S. holders of our ADSs or ordinary shares will be unable to exercise their preemptive rights.

The long-trusted partner of service providers, enterprises and governments around the world, we are a leading innovator in the field of networking and communications technology, products and services. The Group is home to Bell Labs, one of the world’s foremost research centers, responsible for breakthroughs that have shaped the networking and communications industry. We are committed to making communications more sustainable, more affordable and more accessible as we pursue our mission - Realizing the Potential of a Connected World. With operations in more than 130 countries and one of the most experienced global services organizations in the industry, we are a local partner with global reach.

Alcatel-Lucent is a French société anonyme, established in 1898, originally as a listed company named Compagnie

Générale d’Électricité. Our corporate existence will continue until June 30, 2086, which date may be extended by shareholder vote. We are subject to all laws governing business corporations in France, specifically the provisions of the commercial code and the financial and monetary code.

Our registered office and principal place of business is 3, avenue Octave Gréard, 75007 Paris, France, our telephone number is +33 (0)1 40 76 10 10 and our website address is www.alcatel-lucent.com. The contents of our website are not incorporated into this document.

The address for Stephen R. Reynolds, our authorized representative in the United States, is Alcatel-Lucent USA Inc., 600 Mountain Avenue, Murray Hill, New Jersey 07974.

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INFORMATION ABOUT THE GROUP

4.2 HISTORY AND DEVELOPMENT

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INFORMATION ABOUT THE GROUP

4.2 HISTORY AND DEVELOPMENT

RECENT EVENTS

DISPOSITIONS

Disposal of Genesys. On February 1, 2012, we concluded the sale of our Genesys business to a company owned by the Permira funds (Permira is a European private equity firm) and Technology Crossover Ventures (a venture capital firm), for cash proceeds of U.S.$ 1.5 billion, pursuant to a binding offer that we had received on October 19, 2011.

OTHER MATTERS

2011 dividend. Our Board has determined that it is not prudent to pay a dividend on our ordinary shares and ADSs based on 2011 results. Our Board will present this proposal at our Annual Shareholders’ Meeting on June 8, 2012.

Repurchases of convertible bonds. In February 2012, we repurchased and cancelled a portion of the outstanding Alcatel-Lucent USA Inc. 2.875% Series B convertible bonds due June 2025 for U.S.$ 110 million in cash, excluding accrued interest, corresponding to a nominal value of U.S.$ 116 million. This represents 13% of the total U.S.$881 million nominal value of such bonds outstanding at December 31, 2011.

Repayment of notes. In February 2012, we repaid the notes that we had issued in July 2010 with maturity in February 2011 (then extended to February 2012) and in October 2010 with maturity in February 2012, for an aggregate €50 million in nominal value. There remain outstanding €50 million in nominal value of notes issued in July 2010 with maturity in May 2011 then extended to May 2012.

Change in credit ratings. On January 20, 2012, Moody’s affirmed the B1 rating for the Alcatel-Lucent Corporate Family Rating but downgraded from B2 to B3 the two convertible bonds of Alcatel-Lucent USA Inc. which are guaranteed on a subordinated basis by Alcatel-Lucent. Concurrently the ratings for the legacy bonds issued by Alcatel-Lucent USA Inc. and Lucent Technologies Capital Trust Inc., which are not guaranteed by us, were withdrawn. The Negative outlooks have been affirmed.

Agreement with RPX concerning our patents. On February 9, 2012 we entered into an agreement with RPX Corporation (“RPX”), a company active in the patent risk solutions business, pursuant to which, for a finite period, RPX will offer access to our worldwide patent portfolio (which includes more than 29,000 issued patents) through non-exclusive patent licenses to be entered into between members of the RPX client network and Alcatel-Lucent. License fees will vary depending upon company size, portfolio applicability, technology areas and other relevant factors.

HIGHLIGHTS OF TRANSACTIONS DURING 2011

New business group. On July 20, 2011, we announced the formation of a new business group, the Software, Services & Solutions group, which combines the Networks Applications division of our former Applications segment with the four divisions – Network & Systems Integration, Managed & Outsourcing Solutions, Multivendor Maintenance, and Product Attached Services – of our former Services segment which were in place within our business organization at June 30, 2011.

Changes in credit ratings. On November 10, 2011, Moody’s affirmed the Corporate Family Rating of Alcatel-Lucent at B1 and changed the outlook from Stable to Negative. Concurrently, Moody’s downgraded the ratings of the senior debt of Alcatel-Lucent and Alcatel-Lucent USA Inc. to B2 from B1. The ratings for the trust preferred securities of Lucent Technologies Capital Trust I were affirmed at B3.

On May 18, 2011, Moody’s changed the outlook of its Corporate Family Rating of Alcatel-Lucent as well as of its ratings of Alcatel Lucent USA Inc. and of the Lucent Technologies Capital Trust I, from Negative to Stable. The B1 Long Term rating was affirmed.

On April 12, 2011, Standard & Poor’s revised its outlook on Alcatel-Lucent and on Alcatel-Lucent USA, Inc. from Negative to Stable. The B ratings were affirmed.

Extension and repayment of notes issued in 2010. Regarding the notes we issued in October 2010 and July 2010 for an aggregate of €200 million in nominal value, the maturity dates of the notes due in February 2011 for a nominal amount of €25 million and for notes due in May 2011 for a nominal amount of €50 million were extended until February 2012 for a nominal amount of €25 million and until May 2012 for a nominal amount of €50 million. The notes due in August and November 2011 for a nominal amount of €100 million were not extended and were repaid. After the extensions and after the repayments, the new maturity dates became February 2012 for a nominal amount of €50 million and May 2012 for a nominal amount of €50 million.

Repayment of convertible bonds. On January 3, 2011 we repaid our 4.75% convertible/exchangeable bonds (which we refer to as OCEANE) issued in June 2003 and due January 2011 that remained outstanding at that date, for their nominal value of €818 million.

Developments in Microsoft case. This matter initiated in 2003 (along with a number of other patent infringement matters involving Microsoft as well as other parties and long since settled) resulted in a District Court finding that Microsoft’s Outlook, Money and Windows Mobile products infringed the Day patent owned by us. This decision was followed by numerous appeals. The last jury award, in 2011, amounted to US$ 70 million in damages. In November 2011, the judge lowered the award to US$ 26.3 million. This judgment was appealed by Alcatel-Lucent. On December 29, 2011, we and Microsoft settled this dispute and dismissed the Day Patent litigation.

FCPA investigations. In December 2010 we entered into final settlement agreements with the SEC and the DOJ with regards to alleged violations of the Foreign Corrupt Practices Act (FCPA) in several countries, including but not limited to Costa Rica, Taiwan, and Kenya. Both agreements were approved in 2011 by the U.S. Federal Court, which resulted during that year in the payment of U.S.$45.4 million in disgorgement of profits and prejudgment interest to the SEC, the payment, for an amount of U.S.$25 million, of the first of the three installments of the criminal fine of U.S.$92 million imposed on us by the DOJ and our appointment of a French anticorruption compliance monitor for three years. In addition, three of our subsidiaries – Alcatel-Lucent France, Alcatel-Lucent Trade International AG and Alcatel Centroamerica – each pleaded guilty to conspiracy to violate the FCPA’s antibribery, books and records and internal accounting controls provisions.

HIGHLIGHTS OF TRANSACTIONS DURING 2010

DISPOSITIONS

Sale of 2Wire stake. On October 20, 2010 we concluded the sale of our 26.7% shareholding in 2Wire, a U.S.-based provider of advanced residential gateways for the broadband service provider market, to Pace plc, a technology developer for the global pay-TV market, for cash proceeds of €75 million. This transaction was part of the acquisition by Pace of the stock of 2Wire owned by a consortium that included, in addition to Alcatel-Lucent, AT&T, Telmex and Oak Investments Partners.

Sale of vacuum business. On December 31, 2010 we completed the sale of our Vacuum pump solutions and instruments business to Pfeiffer Vacuum Technology AG, a world leader in the vacuum industry. We received preliminary cash proceeds of €197 million. This amount was reduced by a net amount of €1 million in 2011 as a result of various purchase price adjustments.

OTHER MATTERS

Notes issuances. In July 2010 and October 2010, we issued a series of notes for an aggregate €100 million in nominal value upon each issuance (€200 million in total). The notes bear interest at a floating rate and are due in several instalments throughout 2011 and in February 2012, with the right to extend their maturity at our option either annually or until 2016.

On December 2, 2010, we closed our private placement of €500 million Senior Notes due January 15, 2016 with an 8.5% coupon, for which we received net proceeds of €487.3 million. We used all of these net proceeds to partially refinance the 4.75% convertible/exchangeable bonds (OCEANE) due on 1 January 2011 mentioned above.

Repurchases of convertible bonds. In February and March 2010, we repurchased and cancelled a portion of the outstanding Alcatel-Lucent Inc. 2.875% Series A convertible bonds due June 2023 for U.S.$74.8 million in cash, excluding accrued interest, corresponding to a nominal value of U.S.$75.0 million.

Further, on June 15, 2010, many of the remaining holders of the Alcatel-Lucent Inc. Series A bonds exercised their optional redemption right, and as a result we paid the redeeming holders U.S.$360 million in cash, excluding accrued interest, corresponding to the nominal value of the bonds redeemed.

Developments in Microsoft cases. On February 22, 2010, Microsoft filed a Petition for a Writ of Certiorari in the United States Supreme Court asking the Supreme Court to review the Federal Circuit’s September 11, 2009 decision to affirm the District Court’s finding that Microsoft’s Outlook, Money and Windows Mobile products infringed the Day patent. On April 23, 2010, Alcatel-Lucent filed its Brief in Opposition and the Supreme Court denied Microsoft’s Petition on May 24, 2010. A trial took place starting on July 19, 2011 in the U.S. District Court in San Diego to determine the amount of compensation owed to us by Microsoft for its infringement of the Day patent.

On March 2, 2010, the United States Patent and Trademark Office issued a Reexamination Certificate confirming the validity of the Day Patent in response to the re-examination request filed by Dell in May of 2007.

FCPA investigations. In December 2010 we entered into final settlement agreements with the SEC and the DOJ. Under the agreement with the SEC, which has been approved by the U.S. Federal Court, we neither admit nor deny the allegations of violations of the antibribery, internal controls and books and records provisions of the FCPA in the SEC’s complaint, we are permanently restrained and enjoined from future violations of U.S. securities laws, we are liable for U.S.$45.4 million in disgorgement of profits and prejudgment interest, and we agree to engage a French anticorruption compliance monitor for three years. Under the agreement with the DOJ, we will enter into a three-year deferred prosecution agreement (“DPA”) charging us with violations of the internal controls and books and records provisions of the FCPA, and we will pay a total criminal fine of U.S.$92 million – payable in four installments over the course of three years. If we fully comply with the terms of the DPA, the DOJ will dismiss the charges upon conclusion of the three-year term. In addition, three of our subsidiaries – Alcatel-Lucent France, Alcatel-Lucent Trade International AG and Alcatel Centroamerica – will each plead guilty to conspiracy to violate the FCPA’s antibribery, books and records and internal accounting controls provisions. The DPA also contains provisions relating to engaging a French anticorruption compliance monitor for three years (the settlement agreement with the DOJ was approved by the U.S. Federal Court on June 1, 2011).

HIGHLIGHTS OF TRANSACTIONS DURING 2009

DISPOSITIONS

Thales. In May 2009, we completed the sale of our 20.8% stake in Thales to Dassault Aviation for €1.566 billion.

Electrical motors. On December 31, 2009, we completed the sale of Dunkermotoren GmbH, our electrical fractional horsepower motors and drives subsidiary, to Triton, a leading European private equity firm, for an enterprise value of €145 million.

OTHER MATTERS

Joint venture with Bharti Airtel. On April 30, 2009, we announced the formation of a joint venture with Bharti Airtel to manage Bharti Airtel’s pan-India broadband and telephone services and help Airtel’s transition to a next generation network across India.

Co-sourcing and joint marketing arrangement with Hewlett-Packard (HP). On June 18, 2009, we and HP jointly announced a 10-year co-sourcing agreement which is expected to help improve the efficiency of our IS/IT (Information Systems/Information Technology) infrastructure and create a joint go-to-market approach. Under the joint marketing agreement, the two companies will be able to jointly and

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INFORMATION ABOUT THE GROUP

4.2 HISTORY AND DEVELOPMENT

separately deliver integrated IT and telecom products and services to service providers and mid- to large-size enterprise customers. Definitive agreements were signed on October 20, 2009, and were implemented beginning December 2009.

Changes in credit ratings. On November 9, 2009, Standard & Poor’s lowered to “B” from “B+” its long-term corporate credit ratings and senior unsecured ratings on Alcatel-Lucent and on Alcatel-Lucent USA Inc. The “B” short-term credit ratings of Alcatel-Lucent and of Alcatel-Lucent USA Inc. were affirmed. The rating on the trust preferred notes of Lucent Technologies Capital Trust was lowered from “CCC+” to “CCC”. The negative outlook was maintained.

On March 3, 2009, Standard & Poor’s lowered to B+ from BB- its long-term corporate credit ratings and senior unsecured ratings on Alcatel-Lucent and on Alcatel-Lucent USA Inc. The rating on the trust preferred notes of Lucent Technologies Capital Trust was lowered to CCC+. The B short-term rating on Alcatel-Lucent was affirmed. The B1 short-term credit rating on Alcatel-Lucent USA Inc. was withdrawn and a negative outlook was issued.

On February 18, 2009, Moody’s lowered the Alcatel-Lucent Corporate Family Rating as well as the rating for senior debt of the Group from Ba3 to B1. The trust preferred notes of Lucent Technologies Capital Trust were downgraded from B2 to B3. The Not-Prime rating for the Group’s short-term debt was confirmed. The negative outlook of the ratings was maintained.

Issuance and repurchases of convertible bonds. On September 2, 2009, we launched a convertible bond offering. The bonds are convertible into and/or exchangeable for new or existing shares of Alcatel-Lucent (we refer to these convertible bonds as OCEANE). The bonds carry a 5% annual interest rate and the initial conversion price is €3.23, equivalent to a conversion premium of 35%. They are redeemable in cash, at par, on January 1, 2015. Early redemption at our option is possible under certain conditions. On settlement date (September 10, 2009), the proceeds of this offering, including the over-allotment option, were approximately €1 billion.

Concurrently, we offered to repurchase and cancel some of our existing convertible bonds due 2011. On settlement date for the repurchase (September 11, 2009), we purchased 11.97% of the outstanding 2011 bonds. The price per bond was €16.70 (including accrued interest) and the total amount paid was €126 million.

Repurchases of the 2011 bonds also took place after the closing of the repurchase offer. Overall, in 2009, we repurchased bonds of a nominal value of €204 million, corresponding to 19.98% of the outstanding 2011 bonds, for a total cash amount paid of €204 million, excluding accrued interest.

We also partially repurchased and cancelled outstanding Lucent 7.75% convertible bond due March 2017 in 2009, using a total cash amount of U.S.$28 million, corresponding to a nominal value of U.S.$99 million.

We partially repurchased and cancelled outstanding Lucent 2.875% Series A convertible bonds due June 2023 in 2009, using U.S.$218 million in cash excluding accrued interest, corresponding to a nominal value of U.S.$220 million.

Developments in Microsoft cases. On December 15, 2008, we and Microsoft executed a settlement and license agreement whereby the parties agreed to settle the majority of a series of patent litigations that had been outstanding between them. This settlement included dismissing pending patent claims by Microsoft against us and provided us with licenses to all Microsoft patents-in-suit in these cases. Also, on May 13, 2009, we and Dell agreed to a settlement and dismissal of certain issues appealed after a trial involving us, Dell and Microsoft, held in April, 2008. Thereafter, the only matter that remained pending was the appeal filed by Microsoft with the Court of Appeals for the Federal Circuit in Washington, D.C. relating to the “Day” Patent, which relates to a computerized form entry system. On June 19, 2008, the District Court had entered a judgment based on a jury award to us of approximately U.S.$357 million in damages for Microsoft’s infringement of the Day Patent in the April 2008 trial, and had also awarded us prejudgment interest exceeding U.S.$140 million.

Oral argument before the Federal Circuit was held on June 2, 2009, and on September 11, 2009, the Federal Circuit issued its opinion affirming that the Day Patent is both a valid patent and infringed by Microsoft in Microsoft Outlook, Microsoft Money, and Windows Mobile products. However, the Federal Circuit vacated the jury’s damages award and ordered a new trial in the District Court in San Diego to re-calculate the amount of damages owed to us for Microsoft’s infringement. On November 23, 2009, the Federal Circuit denied Microsoft’s “en banc” petition for a rehearing on the validity of the Day Patent.

In a parallel proceeding, Dell filed a reexamination of the Day Patent with the United States Patent and Trademark Office (“Patent Office”) in May of 2007, alleging that prior art existed that was not previously considered in the original examination and the Day patent should therefore be re-examined for patentability. The Patent Office granted Dell’s reexamination request and the examiner issued three office actions rejecting the two claims of the Day patent at issue in the April 2008 trial as unpatentable. In the appeal of that decision, the Patent Office withdrew its rejection of the Day Patent and confirmed that the Day Patent is a valid patent.

FCPA investigations: In December 2009 we reached agreements in principle with the SEC and the U.S. Department of Justice with regard to the settlement of their ongoing investigations involving our alleged violations of the Foreign Corrupt Practices Act (FCPA) in several countries, including Costa Rica, Taiwan, and Kenya.

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INFORMATION ABOUT THE GROUP

4.4 REAL ESTATE AND EQUIPMENT

We occupy, as an owner or tenant, a large number of buildings, production sites, laboratories and service sites around the world. There are two distinct types of sites with the following features:

A significant portion of production, assembly and research activities are carried out in Europe, in the United States and in China for all of our businesses.

At December 31, 2011, our total production capacity was equal to approximately 255,000 sq. meters and the table below shows the breakdown by region for the Networks segment, where our production capacity is concentrated.

We believe that these properties are in good condition and meet the needs and requirements of the Group’s current and future activity and do not present an exposure to major environmental risks that could impact the Group’s earnings.

The environmental issues that could affect how these properties are used are mentioned in Section 5.12 (Environmental matters) of this annual report.

The sites mentioned in the tables below were selected among our portfolio of 594 sites to illustrate the diversity of the real estate we use, applying four main criteria: region, business segment, type of use (production/assembly, research/innovation or support function), and whether the property is owned or leased.

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INFORMATION ABOUT THE GROUP

4.5 MATERIAL CONTRACTS

NATIONAL SECURITY AGREEMENT AND SPECIALTY SECURITY AGREEMENT

On November 17, 2006, the Committee on Foreign Investment in the United States (“CFIUS”), approved our business combination with Lucent. In the final phase of the approval process CFIUS recommended to the President of the United States that he not suspend or prohibit our business combination with Lucent, provided that we execute a National Security Agreement (“NSA”) and Specialty Security Agreement (“SSA”) with certain U.S. Government agencies within a specified time period. As part of the CFIUS approval process, we entered into a NSA with the Department of Justice, the Department of Homeland Security, the Department of Defense and the Department of Commerce (collectively, the “USG Parties”) effective on November 30, 2006. The NSA provides for, among other things, certain undertakings with respect to our U.S. businesses relating to the work done by Bell Labs and to the communications infrastructure in the United States. Under the NSA, in the event that we materially fail to comply with any of its terms, and the failure to comply threatens to impair the national

security of the United States, the parties to the NSA have agreed that CFIUS, at the request of the USG Parties at the cabinet level and the Chairman of CFIUS, may reopen review of the business combination with Lucent and revise any recommendations or make new recommendations to the President of the United States, which could lead to new commitments for Alcatel Lucent. In addition, we agreed to establish a separate subsidiary to perform certain work for the U.S. government, and hold government contracts and certain sensitive assets associated with Bell Labs. This separate subsidiary has a Board of Directors including at least three independent Directors who are resident citizens of the United States who have or are eligible to possess personnel security clearances from the Department of Defense. These Directors are former U.S. Secretary of Defense William Perry, former National Security Agency Director Lt. Gen. Kenneth A. Minihan, USAF (Ret.) and former Assistant Secretary of the U.S Navy Dr. H. Lee Buchanan. The SSA, effective December 20, 2006, that governs this subsidiary contains provisions with respect to the separation of certain employees, operations and facilities, as well as limitations on control and influence by the parent company and restrictions on the flow of certain information.

Strategic Focus. Our strategic vision that we call Application Enablement, launched in 2009, is to improve the Internet or “web” experience of service providers, enterprises and end-users while improving our customers’ return on their investments. To do that, we are working to provide consumers and business users with a rich and more trusted web experience by combining:

Our strategy is the Alcatel-Lucent High Leverage Network^TM (HLN) that supports our Application Enablement vision. Alcatel-Lucent’s High Leverage Network^TM provides the technological foundation needed to help service providers improve the Internet experience for business and consumer customers, providing a platform for the profitable delivery of new revenue-generating services. HLN will also allow service providers the agility to develop applications faster, scale to meet the demands of transporting rapidly growing video and mobile traffic and reduce overall operating costs. For those building private networks in the critical infrastructure segments, such as energy, transportation and public services, HLN will provide the intelligence and mission-critical reliability they need to support their operations.

A High Leverage Network^TM is a converged, all-IP (Internet protocol) network that can carry the different services that are carried today over a service provider’s multiple networks. It delivers broadband access to users on any device (wired or wireless), and automatically provides the bandwidth needed to deliver the services being used. It has the intelligence to manage traffic while providing the quality of service that is appropriate for each user and each of his services, and to do that at optimum cost. It is suitable for deployment in both emerging markets and the developed world, and in both densely populated and remote areas. It requires state of the art capabilities in IP, optics, wireless and wireline broadband access - as well as the software and services that together support Application Enablement.

Through Application Enablement, service providers can make their High Leverage Network^TM available to content and application partners in a managed and controlled way. This approach is intended to help service providers develop new business models and improve subscriber loyalty through unique and personalized services, which help generate more revenue and boost brand value for these service providers. These services include multi-screen and high-definition video services, application-assured business services and collaborative communication services. We also believe that our High Leverage Network^TM will help service providers address new market opportunities such as next generation open access fiber networks, cloud computing and machine-to-machine (M2M) communication.

Organization. In the context of our continued focus on the High Leverage Network^TM framework, on July 20, 2011, we reorganized our operating segments in an effort to better support our vision of the network as a platform that allows service providers to better monetize their networks and improve the quality of service for end-users. The three operating segments are as follows:

In addition, we organize our business as follows:

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DESCRIPTION OF THE GROUP’S ACTIVITIES

5.1 BUSINESS ORGANIZATION

For financial information by operating segment (also called business segment) and geographic market, see Note 5 to our consolidated financial statements and Chapter 6 - “Operating and financial review and prospects”, included elsewhere in this document.

New 2011 Organization

The 2011 organization, following the reorganization in July 2011, is shown in the table below:

Globally, end-user demand for high-bandwidth services that are delivered with an enhanced quality of experience is surging. In addition, global market dynamics are dictating that service providers must have the agility to support multiple business models to deliver innovative revenue-generating services. To meet all these challenges, service providers are evolving their networks to a next-generation, all-IP multiservice infrastructure that is fully converged, optimized and scalable. The Networks segment supplies a broad portfolio of products and offerings used by fixed, wireless and converged service providers to address these needs, as well as enterprises and governments for their business critical communications.

The High Leverage Network™ is our vision of how networks need to evolve, leveraging fundamental technology shifts in wireline and wireless broadband access, internet protocol (IP) and optics to address evolving networking needs. It allows service providers to address the key challenge of how to simultaneously deliver innovative, revenue-generating services and provide scalable, low-cost bit delivery. In order to achieve this objective, in 2011 we continued to invest in:

In 2011 our Networks segment revenues were €9,654 million including intersegment revenues and €9,638 million excluding intersegment revenues, representing 62% of our total revenues.

INTERNET PROTOCOL

Our portfolio of IP routers and switches is designed to support IP-based applications and services while helping service providers monetize their network investment and reduce customer churn. Key services supported by this portfolio include broadband triple play (voice, video and data) for residential customers; Ethernet and IP Virtual Private Network (VPN) services for Enterprise customers; and wireless second generation (2G), third generation (3G) and fourth generation (4G) broadband services for mobile operators.

The main product families within the IP portfolio are:

The applicability of our service router and switch portfolio continues to expand to meet the needs of service providers. The following are some of our key areas of focus and investment in 2011:

Our service routers and carrier ethernet service switches share a single network management system that provides consistency of features, quality of service, and operations, administration and maintenance capabilities from the network core to the customer edge. These capabilities are critical as carriers transform their networks to support new Internet-based services. Our service routers enable service providers to deliver complex services to business, residential and mobile end-users, ensuring high capacity, reliability and quality of service.

OPTICS

Our Optics division designs and markets equipment for the long distance transmission of high speed data over fiber optic connections via land (terrestrial) and undersea (submarine), for the short distances in metropolitan and regional areas, and for traffic aggregation of fixed and mobile multi-services. Our leading transport portfolio also includes microwave wireless transmission equipment.

Terrestrial optics

Our terrestrial optical products offer a portfolio designed to seamlessly support service growth from the metro access to the network core. With our products, carriers manage voice, data and video traffic patterns based on different applications or platforms and can introduce a wide variety of managed data services, including multiple service quality capabilities, variable service rates and traffic congestion management. Most importantly, these products allow carriers to leverage their existing network infrastructure to offer new services and to support third generation (3G) and LTE mobile services.

As a leader in optical networking, we play a key role in the transformation of optical transport networks within a High Leverage Network^TM. Our wavelength-division multiplexing (WDM) products address a variety of markets, from the enterprise to the ultra-long-haul, to meet service provider requirements for cost-effective, scalable networks that can handle their increased data networking needs. Our WDM product portfolio is based on an intelligent photonics approach

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DESCRIPTION OF THE GROUP’S ACTIVITIES

5.2 NETWORKS SEGMENT

which eliminates the need for frequent on-site configuration and provisioning. The 100 Gbps technology innovation available in our WDM products along with 10 Gbps and 40 Gbps high speed rates allow operators to solve bandwidth bottlenecks, while offering the lowest cost per transported bit. This new approach facilitates the design and installation of a more flexible WDM network that is easier to operate, manage and monitor.

In 2011, the Terrestrial optics unit focused its R&D efforts on:

These products and technologies provide cost-effective, managed platforms that support different services and are suitable for many different network configurations.

Submarine

We are an industry leader in the development, manufacturing, installation and maintenance of undersea telecommunications cable networks. Our submarine cable networks connect continents (using optical amplification required over long distances), a mainland to islands, island to islands or several points along a coast. This market is characterized by relatively few large contracts that often require more than one year to complete. Projects are currently concentrated on links between Europe, Africa, India and Southeast Asia. In addition to new cable systems, this market also includes significant activity upgrading existing submarine networks as our service provider customers add capacity – moving to 40 Gbps and preparing for 100 Gbps - in response to surging broadband traffic volumes.

Wireless transmission

We offer a comprehensive portfolio of microwave radio products meeting both European telecommunications standards (or ETSI) and American standards-based (or ANSI) requirements. These products include high, medium and low

capacity microwave transmission systems for mobile backhaul applications, fixed broadband access applications, and private applications in markets like digital television broadcasting, defense and security, energy and utilities.

In 2011, the Wireless Transmission unit focused its R&D efforts on:

In the wireless transmission market, we maintained a leadership position in both the worldwide packet microwave segment as well as the long haul segment.

WIRELESS

Our “Wireless All Around” approach is a unique combination of wireless and IP products designed for mobile operators so that they may improve the mobile internet service for their customers. We enable today’s network evolution toward end-to-end wireless IP, supporting a converged radio access network (RAN) using multi-generation (2G, 3G, and 4G LTE) access radio equipment and the latest lightRadio™ and small cell/femto technologies. We launched lightRadio™ in 2011 as an innovative platform that provides service providers a true converged RAN, enabling capacity upgrades more quickly and cost effectively.

CDMA (Code Division Multiple Access)

Our CDMA strategy is focused on maintaining our installed base of this technology by delivering quality, capacity and OA&M (operations, administration and management) improvements to our customers. In 2011, we continued to focus on our customers’ total cost of ownership with products that can reduce capital expenditures and operating expenses. Operators are seeking to evolve their existing networks to the latest LTE technology that will work with their existing 3G technology which will allow the reuse of base station and back haul assets, while at the same time minimizing the footprint and improving the power efficiency of these products. Our Multi-Technology (MT) products accomplish this evolution. Introducing elements from our LightRadio™ program into our CDMA product provides CDMA operators the benefit from the latest wireless advances and reinforces our commitment to eco-sustainability.

The current version of CDMA technology supports circuit switched voice with CDMA2000^® 1X and packet data with 1x EV-DO Revision A. We have developed improvements for both programs: 1X Advanced uses improved interference cancelation routines to improve the voice capacity and quality of existing networks and has the potential to triple the current

voice capacity with new 1X Advanced handsets. Likewise, 1xEV-DO Revision B has the potential to triple the current Revision A user data experience and a new program called EV-DO Advanced provides network load balancing features that improve the overall user experience by maximizing the operational efficiencies of heavily loaded networks.

GSM (Global System for Mobile Communications)

We develop mobile radio products for the second generation (or 2G) GSM (or Global System for Mobile communications) standard, including GPRS/EDGE (or General Packet Radio Service / Enhanced Data Rates for GSM Evolution) technology upgrades to that standard. As part of our multi-technology or multi-mode strategy, our GSM radio products also support 3G and 4G technologies to allow a smooth network evolution at minimum cost. While GSM is a mature technology, operators in emerging markets, such as China and India, continue to add capacity to accommodate subscriber growth.

In 2011, we launched our new SDR (software defined radio) product that allows fast and cost-effective network rollouts and facilitates upgrading to new wireless technologies (such as 3G and 4G) by software upgrade.

As part of our innovation program, we are active in the “Green” base station market with products powered by renewable energy sources. We have already deployed thousands of base stations using alternative energies worldwide, including wind and solar power. Our Dynamic Power Save capability can be installed in base stations and has helped reduce the power consumption by up to 30%.

W-CDMA (Wideband Code Division Multiple Access)

Wideband Code Division Multiple Access, referred to as W-CDMA or Universal Mobile Telephone Communications Systems (UMTS), is the third generation wireless technology derived from the GSM standard deployed worldwide. The focus on W-CDMA and other 3G wireless technologies has increased along with increasing end-user demand for mobile broadband capabilities because pre-3G technologies have an extremely limited broadband data capability. Growing demand for mobile broadband has driven increased investment in 3G networks so that our service provider customers can offer new mobile high-speed data capabilities to end-users.

We are a key supplier of some of the W-CDMA networks carrying the highest amount of traffic in the world, including AT&T in the U.S., China Unicom in China and various networks in Korea. Our portfolio strategy is based on improving network capacity while reducing total cost of ownership, consistent with our High Leverage Network^TM concept. For example, our multi-technology and multi-carrier radio modules are key components of our converged RAN (radio access network) solution that allows for a smooth technology evolution to LTE. We conducted our first lightRadio W-CDMA Metrocell trials with tier-1 operators in Europe and the Middle East aimed at improving network efficiency and complementing an operator’s broader network at a lower cost with a shorter time to market.

TD-SCDMA (Time Division-Synchronized Code Division Multiple Access)

We have an alliance with Datang Mobile to foster the development of the TD-SCDMA (or Time Division-Synchronized Code Division Multiple Access) 3G mobile standard in China, where we deployed trial TD-SCDMA networks starting in 2006. In 2009, we were selected, along with Datang Mobile, by China Mobile for deployment of its phase III TD-SCDMA mobile networks in 11 provinces. In 2010, we continued to work with China Mobile as it continued its massive TD-SCDMA rollout (phase IV) to expand 3G coverage across China, with the networks covering 339 Chinese cities. In 2011 we continued deployment of TD-SCDMA equipment. Growth will depend upon how quickly the handset and other device markets expand.

LTE (Long-Term Evolution)

Fuelled by the proliferation of smartphones, tablets, laptops and netbooks, the increasing number of multimedia applications and the resulting surge of mobile broadband data traffic, the market for 4G LTE (Long Term Evolution), or fourth-generation wireless, is being adopted faster than originally predicted. The first commercially available LTE networks are now operational, including several large scale networks serving millions of people. In addition there are a significant number of service providers who are participating in advanced large scale trials and pilot networks. LTE offers service providers a highly compelling evolution path from all existing networks (GSM, W-CDMA, CDMA or WiMAX) to 4G wireless by simplifying the radio access network and converging on a common IP base, leading to better network performance and a lower cost per bit. LTE creates an environment in which consumers will be able to use wireless networks to access high-bandwidth content at optimal cost, enabling a new generation of affordable services.

We are focusing our LTE R&D spending on developing a differentiating, end-to-end all-IP wireless offering that includes our RAN (radio access network), mobile backhaul that supports 2G, 3G and 4G/LTE traffic, a high-performing evolved packet core, end-to-end IP multimedia subsystem (IMS) and a full set of differentiating 4G/LTE services and applications. In February 2011, we announced our vision for a breakthrough multi-generation wireless portfolio called lightRadio, which will allow service providers to quickly expand network capacity, lower operating costs and reduce energy consumption. The lightRadio portfolio is being co-created in collaboration with leading operators like China Mobile, Telefonica, Etisalat and others and has won several industry awards for innovation in mobile broadband.

As for services, we founded the ngConnect Program to link operators with a broad ecosystem of device, content and application partners committed to the development and rapid deployment of new services based on LTE and other high bandwidth technologies. We have entered into contracts to deploy commercial LTE networks with 20 operators worldwide, including Verizon Wireless, AT&T, Sprint, Vimpelcom Group, Etisalat and large scale pilot networks with China Mobile and Telefonica. We currently have more than 80 LTE trials covering different geographies, frequencies and applications.

5

DESCRIPTION OF THE GROUP’S ACTIVITIES

5.2 NETWORKS SEGMENT