Lucent-Alcatel Deal: Fewer Choices?

Customers worry proposed merger will lead to lack of competition, affecting purchasing power.

The potential acquisition of Lucent Technologies Inc. by French manufacturer Alcatel S.A. may not raise the regulatory red flags that slowed other recent international telecommunications mergers. But even if the deal were to breeze through Washington, it would not necessarily mean smooth sailing for customers.

"Im sure all of our members have concerns to some extent because they rely on Alcatel and Lucent," said Michelle Tober, spokeswoman for the United States Telecom Association, which represents local exchange carriers. "If [the merger] is going to eliminate competition, that could lead to rising prices."

Lucent, of Murray Hill, N.J., and Paris-based Alcatel have reportedly been in talks that could lead to a merger thats worth more than $30 billion. Officials at both companies have declined to comment on the rumors.

While the strengths of Lucent and Alcatel are complementary in many ways, some product lines do overlap. For the pair, redundancies present an opportunity to cut costs—something all manufacturers are seeking in the slowing economy. Industry observers agree a merger will likely lead to reductions in personnel and in duplicative products. Fewer choices in vendors for the same products will also mean less purchasing leverage for customers.

USTAs largest members, the Regional Bell Operating Companies, were reluctant to criticize or praise the potential merger, however, given the possibility of reduced choice in suppliers in the future.

"This is not something we would be commenting on," said Susan Butta, spokeswoman for Verizon Communications in New York. "Its just something we would not do, to talk about one of our suppliers."

However, enterprise customers, with less purchasing power generally, are familiar with the downside of consolidation among suppliers.

"The impact depends on which companies [are merging] and what kind of consolidation you are talking about," said Joan Moyer, director of the Information and Technical Division for the city of Toronto. "If you have a company that youve been dealing with and youre extremely happy with it, theres always the question of whether youre going to get the same service [from a new company]."

Unlike the service provider market, where there is a long tradition of monopoly and geographic restrictions to service, the world of manufacturing provides greater opportunity for new entrants, analysts said. "There are plenty of competitors out there still," said Elliott Hamilton, an analyst at The Strategis Group, in Washington. "Its hard for equipment manufacturers to act like monopolists."

For enterprises with overseas operations, a Lucent- Alcatel merger could be beneficial, according to Hamilton. "The corporations depending on these products are global as well, so they may see [a merger] as a positive," he said.

The deal is far from done, and while it wont face regulatory hurdles telecom carriers such as Deutsche Telekom AG and VoiceStream Wireless Corp. face, the financial benefits to the companies remain uncertain.