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jim_duffy
Managing Editor

The urge to merge

Opinion
Apr 11, 20062 mins
Networking

* Lucent, Alcatel merger harbinger of things to come

It was only a matter of time before large-scale consolidation among telecom equipment vendors took hold.

Last week’s merger agreement between Lucent and Alcatel is a harbinger of things to come. As their carrier customers combine, it behooves equipment suppliers to follow suit in order to match the breadth and scale of their buyers.

The new market structure consists of fewer, larger players for telecom vendors to sell to. It’s been architected by the multibillion-dollar acquisitions of AT&T and MCI by SBC and Verizon, respectively, and by AT&T’s plans to acquire BellSouth.

As carriers consolidate, the impact on vendors is manifold. Not only do they lose customers, they lose negotiation leverage on pricing.

The megacarriers can unify their procurement activities for wireline and wireless endeavors, eliminate the buildout of parallel networks (which reduces demand), and vanquish other redundancies. So vendors need to adapt to this new playing field or risk being left out of the game altogether.

They need to offer products and services to fulfill the new scope and scale needs of their combined customers, and eliminate their own redundancies and generate savings at the same time. Acquiring one another is the sturdiest way to attain that and remain viable for the long-term.

“The entire industry could now be in play,” states Tal Liani, an analyst at Merrill-Lynch, in a research report.

jim_duffy
Managing Editor

Jim Duffy has been covering technology for over 28 years, 23 at Network World. He covers enterprise networking infrastructure, including routers and switches. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy and at jduffy@nww.com.Google+

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