Alcatel, Lucent Will Merge

The deal is likely to kick off a round of consolidation among telecom equipment makers, whose customers, the big telcos, have been on a merger binge of their own, leaving the equipment shops with smaller orders from fewer customers. The thinking is that merger-related cost savings will help the equipment makers better cope with this new reality.

In addition to cost savings, the companies say they will benefit from combining their research efforts as the telecommunications industry confronts rapid change.

"The communications industry is at the beginning of a significant transformation of network technologies, applications and services -- one that is projected to enable converged services across service-provider networks, enterprise networks and an array of personal devices," said Lucent's Russo in the press release. "This presents extraordinary opportunities for our combined company to accelerate its growth."

The deal could face tough political and regulatory hurdles, however, analysts have warned. Some politicians may feel uncomfortable about having foreign control of a company that has supplied lots of telecommunications equipment to the federal government.

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