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Fewer choices if Alcatel, Lucent merge

If it goes ahead, the merger would leave customers--mainly service providers--with a smaller bag to pick from, says analyst.
Written by Jeanne Lim, Contributor

Service providers in the Asia-Pacific region will end up with less choices should a merger between telecommunications networking companies Alcatel and Lucent Technologies take place, says an industry analyst.

Teyew Sin Siew, head of telecoms research at Frost & Sullivan, said that although there are synergies between the two companies that can be leveraged on, there is still a "considerable amount of product overlaps" between both organizations.

And as both companies serve players in the service provider sector as their main stable of clients, "[having] product overlaps means wiping one out, and this translates to fewer choices for the service providers", Teyew said.

Last Friday, news wire Reuters reported that Alcatel is in merger talks with its U.S. rival. The deal will have a combined market capitalization of more than US$33.78 billion, with Alcatel accounting for US$22.02 billion of that value.

If it goes ahead, the merger will form the world's biggest telecommunications company, with combined sales of US$25.33 billion.

When contacted, Alcatel's Asia-Pacific spokesperson would only give a statement that confirms the French telecom equipment maker and Lucent "are engaged in discussions about a potential merger". The spokesperson declined to comment further until an agreement is reached, or talks of the merger are terminated.

In 2001, advanced merger talks between the two companies fell through because Lucent wanted a merger of equal rights, while Alcatel wanted the deal to be constructed as an acquisition of Lucent.

According to Frost & Sullivan's Teyew, a union is still likely to wrought some strong synergies for both companies.

Alcatel has strong ties with wireline operators, especially in the broadband space, he explained, while Lucent is well-known in the optical, wireless, and services market segments.

"The merger would help to strengthen their foothold in both the wireline and wireless markets as the global telecommunications industry moves into the era of convergence," Teyew said.

In addition, the combination of the two companies would produce an organization with larger revenues than established market leader Cisco Systems.

How would competitors such as Cisco and Nortel Networks, fare against the merged entity, if talks indeed lead to actualization?

Teyew said: "The merger would [give] Alcatel a bigger presence in the U.S. market, [allowing it to compete] directly with the likes of Cisco and Nortel."

However, he noted that the merged entity is more likely to compete with Nortel head-on for most of its products and services, and less so with Cisco, given that the latter focuses more on enterprise business.

"Nortel is a dominant player in the optical and wireless CDMA (code division multiple access) market, an area where Lucent is also strong in," Teyew said. "The merged entity would create a stronger force to be reckoned with, in terms of financial strength and presence."

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