Lucent Starts Land Grab

Curiously, Nortel may have unwittingly rebroken the ice between Alcatel and Lucent, which previously discussed a merger five years ago.

Nortel and Alcatel may have had merger talks that ended abruptly when the Toronto telecom titan discovered yet another bookkeeping blunder, say analysts. With Nortel veering into another audit mess, Alcatel apparently turned to Lucent as a suitable alternative, analysts say.

Though analysts see the strategic rationale and the complementary products that Alcatel and Lucent would gain through a combo, some say the deal seems destined for a lengthy political and regulatory review.

At one point about 65% of the federal government's phone system ran on Lucent gear, which includes systems that date back to the Western Electric era, says Greenholtz.

As a result there are going to be a lot of concerns about a foreign company having control, says Greenholtz: "This will be the biggest problem they face with the deal, getting the government to buy into it."