Now what?

After months of dating on the sly, the phone-gear giant

Lucent

(LU)

finally consummated its long-awaited purchase of

Ascend

(ASND) - Get Report

, a computer networker, for $20 billion in stock. Now, Lucent can challenge

Cisco

(CSCO) - Get Report

in a bid for global domination of the communications-equipment field.

The Lucent-Ascend merger means that rivals such as

Alcatel

(ALA)

and

Ericsson

(ERICY)

must hunt for partners if they are to play a role in tomorrow's network.

That network will be based on Internet Protocol (IP), which experts believe is becoming the lingua franca of computers conversing across the globe. Because Internet traffic is swelling to overtake voice traffic, carriers like

Level 3

(LVLT)

and

Qwest

(QWST)

are building networks that will simply treat voice calls like Internet traffic.

For suppliers, sheer size counts. The Lucent-Ascend axis boasts $31 billion in revenue and a combined market capitalization of $158 billion. While Lucent and Ascend do less than one-third of their business internationally, they still are growing sales faster than Ontario-based

Nortel

(NT)

and European players Alcatel and Ericsson. These three boast $66 billion in revenue but only $104 billion in market capitalization.

Look for companies such as

Fore Systems

(FORE)

, a leading supplier of ATM switches,

Cabletron

(CS) - Get Report

, which is offering older switches, and

Ciena

(CIEN) - Get Report

to consider buyers. These small builders of switches and routers are themselves being squeezed by competitive forces.

Analyst Farrokh Billimoria with

Hambrecht & Quist

says smaller computer networkers face the prospect of being overshadowed by telecom giants. "At some point, the customer might just decide to go to someone with size," Billimoria says. Carriers in particular like to purchase network products from large suppliers, such as Lucent, which can offer discounts and likely will survive for years to come.

Worried about price competition, Billimoria has hold ratings on

3Com

(COMS)

, Cabletron and Fore Systems. H&Q advised a company that Cabletron purchased in March 1998, but otherwise the firm has no banking ties to the companies Billimoria discussed.

Yet, not many of the remaining networkers are ripe takeover targets. 3Com is developing strong IP systems, but much of its business still depends on low-profit modems and PC-adapter cards. Fore Systems boasts strong ATM technology, but it recently stumbled with a product transition. Cabletron has lost considerable corporate market share. Ericsson has been a rumored acquirer of all three of those companies, according to one buy-side source.

Takeover speculation also has swirled around Canada-based

Newbridge

(NN)

, although sales of its base "time-division multiplexing" systems are likely to slow in coming quarters.

Another group of companies that could be taken over includes a bunch of start-ups such as

TransMedia

,

SALIX

and

Castle Networks

that offer new technologies for networking. Castle, for example, is designing a low-cost switch that combines voice traffic with Internet messages.

The Lucent-Ascend deal will also prompt rivals to adopt IP more quickly, says Phillip Coburn, senior vice president with New York money manager

Lynch & Mayer

. His firm holds shares of Cisco and Lucent.

Already Cisco is prodding a new breed of carriers like

Enron Communications

, a unit of

Enron

(ENE)

, to jump to all-IP gear.

"I don't think the music has stopped yet," says analyst Chris Nicoll with

Current Analysis

, a telecommunications research firm. (His research firm advises

Siemens

. But, he adds, Ericsson, Alcatel and Siemens "really are going to be left out in the cold" unless they broaden IP offerings soon.