Impact of Alcatel, Lucent plan may take time

It will take years to integrate the two companies, analysts say

Businesses wondering how they could benefit from the planned merger between Alcatel SA and Lucent Technologies Inc. may have to wait several months until the two telecommunications equipment manufacturers hammer out details of their colossal link-up, analysts say.

"The deal is going to take between six and 12 months to clear, and then a couple of years -- at the very least -- will be needed to integrate the two companies," said Lars Godell, an analyst with Forrester Research Inc. "This is going to be a very complex undertaking."

The two companies announced plans for the merger, which has been expected for several weeks, over the weekend. Combined revenue of the two companies would be about €21 billion (US$25 billion).

A key question executives will face along the way is whether the newly combined company should follow the path taken by Lucent, which decided to spin off its enterprise networks business in 2000 into Avaya Inc. and focus mostly on delivering equipment and services to carriers, or the one pursued by Alcatel, which continues to deliver a wide range of enterprise systems, including routers.

In a webcast news conference in Paris on Monday, Alcatel Chairman and Chief Executive Officer Serge Tchuruk and his counterpart at Lucent, Patricia Russo, only briefly mentioned enterprise customers in reference to the two companies' work on developing IMS (Internet Protocol multimedia subsystem) technology, which defines how IP networks handle voice calls and data sessions, and next-generation all-IP networks. Their remarks were aimed mostly at network operator customers, especially the big global players requiring global support.

Most U.S. carriers, including AT&T Inc., Cingular Wireless LLC, and T-Mobile USA Inc., had no comment to offer on the proposed merger. One carrier, however, said it did not expect the merger to shake up its relationship with Lucent.

"We have a good relationship with Lucent now and don't anticipate things to change," said Brenda Raney, a spokeswoman for Verizon Wireless, of Bedminster, New Jersey. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone Group PLC.

Another carrier pointed out that the proposed merger could provide greater security for the carriers that rely on products from the two companies.

"They are a complement to each others’ businesses, and together can provide added scale. If it makes them stronger financially, it’s a good thing for the industry, and for their own viability in the long term," said David Gunasegaram, a spokesman for Sprint Nextel Corp. in Reston, Virginia.

Alcatel spokesman Mark Burnworth said it was still "too early" to delve into any details, such as which product lines could be expanded or dropped.

Alcatel offers a range of products that target business customers, such as VOIP (voice over IP) systems and LAN switches.

With its OmniPCX product, Alcatel is one of the few remaining competitors of Cisco Systems Inc. in the market for enterprise routers, according to Jean-Charles Doineau, senior analyst with Ovum Ltd., a consultancy located in London. "And it's a tiny competitor," he said.

Of the world's 500 largest enterprises, only 60 are in Europe and only around 50 percent of these use Alcatel equipment, according to Doineau. Almost all the rest are Cisco customers, he said.

Even if Alcatel is a small enterprise supplier compared to Cisco, and Lucent is sidestepping that segment of the market altogether, Doineau doesn't anticipate a significant shift in strategy from the combined company for servicing business customers. "I don't think enterprise is an area where we can expect any big changes soon, if at all," he said.

The sheer size of the combined equipment manufacturers should have an impact on enterprise customers, according to Doineau. "The new company will have a greater capability to offer service, with thousands of people on the ground to serve customers at their locations," he said. "And the company will be able to throw a lot more at innovation with its combined R&D resources."

Together, Alcatel and Lucent will have more than 26,000 engineers and researchers, 25,000 patents and an R&D (research and development) budget of around €2.4 billion, according to Russo.

Copyright © 2006 IDG Communications, Inc.

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