Lucent, Alcatel Consider Second Attempt to Merge
By Leslie Cauley
NEW YORK — Leverage.
In a word, that’s why telecom equipment makers Lucent and Alcatel are considering marriage. The companies confirmed late last week that they are in merger talks, marking their second attempt in five years to combine.
Consolidation elsewhere in the telecom industry is a key driver.
In the past decade, the seven regional Bells have dropped to three. Of the big three long-distance carriers, only one — Sprint — is still independent. SBC bought AT&T and named the new company AT&T. Verizon bought MCI.
The story is much the same in the U.S. wireless industry. The No. 1 and No. 2 players — Cingular and Verizon Wireless — are owned by AT&T and Verizon.
AT&T recently announced plans to buy BellSouth, which owns 40% of Cingular. Once that $67 billion deal closes, AT&T will own all of Cingular.
Equipment makers such as Alcatel and Lucent are slowly being overshadowed by their far bigger customers. To maintain clout at the negotiating table, equipment makers need to get bigger fast.
“The bigger the (telecom) carriers become, the power shifts more to the customer,” says Ping Zhao, a senior telecom analyst at CreditSights.
AT&T is the USA’s biggest telecom with more than $100 billion in annual revenue. Verizon is No. 2, with about $90 billion in annual revenue.
Lucent, which for decades was owned by AT&T, pulled in $9 billion last year. Alcatel, based in France, had revenue of about $16 billion.
When Alcatel tried to buy Lucent before, the deal fell apart amid disagreements about control. Alcatel wanted management control and to fill key positions with its own people; Lucent objected.
Lucent’s value has fallen sharply since then. Its shares closed at $3.06 Friday, up 24 cents, or 8.5%.
What hasn’t changed is Lucent’s closeness with the U.S. telecom industry because of its roots in the old Bell System.
That might be the biggest draw for Alcatel, says George Calhoun, a professor of business and technology at the Stevens Institute of Technology. “They’ve been trying for 20 years to penetrate the U.S. market, and they really haven’t done that.”
(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.