The planned Alcatel-Lucent merger better than anything else reflects the forces driving the telecom industry: carrier consolidation, the fall in cost and price, the need for scale, the drive to convergence and the challenge from Chinese vendors
Whatever else happens between now and December 31, the $25 billion combination of Alcatel and Lucent is the biggest telecom event of the year.
It's not because of the financial scale, or the disappearance of the original telecom company, or even the shock of a French enterprise seeking cohabitation with an American one.
It's because the new trans-Atlantic giant better than anything else reflects the forces driving the telecom industry: carrier consolidation, the fall in cost and price, the need for scale, the drive to convergence and the challenge from Chinese vendors.
The deal, announced in late March, was the second time around for the two partners.
The two CEOs, Serge Tchuruk and Patricia Russo, seem this time to have navigated successfully through the shoals that wrecked the 2001 attempt. They've fenced off Lucent's sensitive US government work and look set to sell Alcatel's satellite business to Thales.
Shareholders from both companies will vote on September 7, but it could take until early 2007 before the merger wins all the regulatory approvals.
The immediate result is the world's biggest DSL vendor, the second biggest in cellular and second in services, with a marquee customer base that includes BellSouth, AT&T, Cingular and China Mobile.
The larger effect is to make further rationalization of the vendor sector inevitable.
The main driver, says Yankee Group senior analyst Nick Maynard, is the consolidation of Tier 1 carriers, which account for the bulk of telecom capital spending.
'That makes it difficult for a dozen or so global vendors to chase after fewer and fewer customers, and to get those accounts, they need to provide end-to-end solutions - not just wireline, not wireless but both,' he explains.
Vendors are looking to 'fill in the gaps in their coverage' with acquisitions, such as Ericsson's recent takeover of Marconi and Lucent's purchase of Ethernet company Riverstone.
Among the global vendors. next on the sale block most likely is the loss-making Siemens networking group, Siemens Com. Siemens management are looking to exit telecoms and this year have already offered it to Nokia and Motorola without success.
Nortel, which hired its third CEO in four years last year after a series of stock exchange re-filings, is also vulnerable.
Jeff Heynen, an analyst at Infonetics Research, thinks Nortel-Siemens is a good fit. Combined they would be first or second in enterprise telephony, next-gen voice, optical switching and wireless infrastructure. 'In addition, the combination would satisfy Nortel CEO Mike Zafirovski's demand that Nortel remain active only in markets in which it can achieve at least a 20% market share.'
'I think we will see some more mergers, but I have not been able to pinpoint any,' said Bengt Nordstrom, vice president and chief strategy officer of European consultancy inCode. 'If you take the top five to seven players, I cannot see an obvious one. Most of the potential mergers have a very strong overlap on the product side.'