As Alcatel Corp.’s board of directors met last Thursday to review its “merger of equals” with long-time rival telecom equipment vendor Lucent Technologies Inc., analysts were pounding out reports and talking up a storm, delving into the merger’s many angles.
The Yankee Group said an Alcatel/Lucent merger would lead to a global spike in merger and acquisition activity for the vendor community within a year. Carrier consolidations, a competitive equipment market and rapid technology advances have created greater vulnerabilities among vendors, the analyst firm noted, adding that a wave of potential mergers with vendors such as Motorola Inc., L.M. Ericsson and Nortel Networks Ltd. will emerge in the aftermath of Alcatel and Lucent merger talks.
“The potential Alcatel/Lucent merger is another confirmation of the telecommunications industry experiencing dramatic changes in business models, strategy and operations,” said Nick Maynard, senior analyst at the Yankee Group. “As carrier consolidation continues to drive increased vendor instability, existing players will need to seek merger and partnership opportunities to compete within the new market structure.”
And while some analysts speculated that Ericsson may steal Alcatel’s thunder and scoop up Lucent with a bigger, fatter offer, other analysts said Ericsson’s interest in Lucent is likely nothing more than a ploy to drive up the final buying price for Alcatel.
But most analysts agree with the Yankee Group that more mergers are on the way. “I would expect we’ll see something sooner rather than later,” said Reuben Chaudhury, director of the communications practice at Mercer Management Consulting. “They’re probably already having discussions.”
Chaudhury noted that Alcatel’s merger with Lucent puts significant pressure on other vendors, like Nortel. However, he said, “Nortel doesn’t necessarily have to merge to survive. They could begin consolidations, become more focused. They could choose to shrink to survive.”
Siemens A.G. keeps getting talked about as a well-suited partner for Nortel, but Chaudhury says not to count out Nokia Corp. and Chinese vendor Huawei Technologies Co. Ltd. Both companies could expand their footprints into North America and CDMA technology by merging or acquiring Canadian-based Nortel. For Nortel, such deals would open the door to GSM/UMTS markets in Europe and China.
And while the Yankee Group points out that a merged Lucent and Alcatel would become the leading fixed-line next-generation network supplier, ABI Research noted that Alcatel and Lucent’s managed services business would be as large as Ericsson’s, possibly larger.
As of RCR Wireless News press time, there was no word from Paris regarding Alcatel’s board meeting, but Chaudhury said, “I expect that within the next two or three weeks, we should have a pretty good indication of what’s going to happen. If not, we can assume it’s not going to happen anytime soon.”
