Phone Suppliers Staying Single

And as for the shrinking customer base, industry watchers say the big telco mergers are a good year from completion, and lots can happen between now and then. Deals can break. Supplier allegiances can shift. It may be too early for some gearmakers to throw in their lot with rivals.

"The real impetus to merge hasn't hit yet," says Telecom Pragmatics analyst Sam Greenholtz. "It could be a year until you see panic among the equipment suppliers."

For now, industry analysts and some insiders say that while there's not much on the big-bang deal front, there has been a definite interest in acquiring certain units within other companies.

The merger route may become the only path to growth, says Lehman Brothers analyst Steve Levy.

"The big driver will be sales growth," says Levy. Large equipment companies will begin to merge as they seek sales growth "outside their own customer base." But Levy says he doesn't think that will happen for another two years, or about the time when big shops see their profits start to slide.

Some players may be facing that scenario sooner than others.

Ericsson, for example, is at the tail end of a big third-generation, or 3G, wireless upgrade cycle in Europe. Unless it can gain traction in new markets such as the U.S. or Asia, a painful decline could set in.

Some observers say Ericsson could easily be interested in filling out areas of wireless technology such as code division multiple access, or CDMA, with the help of Lucent or Nortel.

Wireless remains one of the telecom industry's strongest growth markets. Motorola's rejuvenated focus on mobility has sparked its handset business, but it has notched few big wins at its network equipment unit. Meanwhile, rival Lucent has become a bit of a budding star in wireless infrastructure business with nearly a clean sweep of recent U.S. carrier contracts.