Alcatel and Lucent have agreed to merge and plan to focus on converged network provision

Alcatel and Lucent Technologies have finalised terms of their merger agreement and plan to capitalise on the trend towards converged networks running an increasing mix of content types.

The emerging company will have combined revenues of about $25bn and be based in Paris. In a conference call today, both firms noted the requirement for large firms operating on a global scale and offering a new combination of products and skills.

The merger is subject to regulatory and shareholder approval, and is expected to take six to 12 months to complete. The name of the proposed combined company is yet to be announced.

Lucent chief executive Patricia Russo, who will lead the emerging company, said the combined firm would be “number one or number two” in key areas such as fixed-mobile convergence, wired and wireless broadband, and integration services.

“Our customers are looking for new customers and services their customers will be willing to pay for,” she added. “[The new networks] will be richer and more content-oriented.”

Alcatel chief executive Serge Tchuruk said, “Traditional networks are moving to all-IP networks – this is a sea-change we’re witnessing. [The combined company] will be able to offer the lowest cost and price.”

Some watchers also noted that the merger would have been influenced by the emergence of new equipment makers in China and other Asian countries with low-cost manufacturing.

"The Lucent/Alcatel deal is an example of suppliers responding to a rapid large-scale consolidation amongst their customers and the emerging threat of far eastern competitors, as well as customers migrating to less diverse systems and outsourcing support and maintenance,” said
Simon Pearson, transaction advisory director at Ernst & Young.

Some watchers believe that the rush towards offering enough buying power will see more merger and acquisition activity following on from Ericsson-Marconi and Alcatel-Lucent.

"With fewer customers operating fewer systems, suppliers are in a scale race [for] complete solution deployment, R&D investment and customer reach,” Pearson said. “We are seeing these same themes resonating all down the telecoms supply chain. What is sure is that this marks the starting gun for the next phase of telecoms equipment supply and a re-invigorated M&A market, as those unencumbered by significant integration change will look to acquire differentiating technologies and customer service."

Scenarios could include “a new Lenovo-like player”, he added, referring to the Chinese firm that took over IBM’s PC business with IBM maintaining a minority interest.