It's deal time.

Alcatel's ( ALA) renewed talks with Lucent ( LU) lend credibility to the now-or-never thinking about telecom equipment company matchups. Networking shares jumped Friday as Wall Street mulled over the trans-Atlantic merger that could be worth $13 billion or so.

Given the pairing trend that swept through the telco sector last year -- SBC and AT&T ( T), Verizon ( VZ) and MCI -- networking gearmakers are left with smaller orders from fewer customers. To survive the squeeze, suppliers are under pressure to combine products and cut costs through consolidation.

Adding to the excitement is the shrinking window for getting deals done while Washington is still inhabited by a pro-merger administration, say observers.

"There's just not enough business for all these companies. Deals have to start happening or we will see some major bankruptcies," says Telecom Pragmatics analyst Sam Greenholtz. There's a deadline ahead as the Bush Administration approaches the midpoint of its final term. "Once we get into an election year, things are going to change," says Greenholtz.

Observers say the courtship stage is set to intensify, and that all that's needed is one deal to set the players in motion. For example, the big telcos remained in a merger stalemate for years until Sprint ( S) made a deal with Nextel in December 2004. Within a year, six phone companies became three.

Now that Alcatel and Lucent are talking again, the other telecom equipment shops like Nortel ( NT), Ericsson ( ERICY), Juniper ( JNPR), Tellabs ( TLAB) and Fujitsu are more likely to start picking partners. On Friday, Nortel and Tellabs each surged 5%, while Juniper added 2% and Ericsson was fractionally higher.

"They have been eyeing each other for five to six years, and certainly for the past two years have known that if one couple partners up the other four will need to follow," says one industry observer.

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."

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