Corporate Consolidation in the Telecom Equipment Sector

2006 was a blow-out year of acquisitions and mergers for major telecom equipment vendors around the world, as players in this vital market recognize the efficiency, practicality, and cost benefits of the multinational corporate structure.

Alcatel and Lucent, for example, which announced their trans-Atlantic merger agreement in April 2006 and sealed the deal by year’s end, expect immediate cost savings of €1.7 billion in the three year’s subsequent to the US$11 billion deal.

Alcatel-Lucent, as the Paris-based company is now called, also hopes to efficiently combine its collective knowledge and product portfolio for a more diversified position in the global market. France’s Alcatel brings to the table its strong position in the DSL equipment market, while Lucent Technology gives the merged entity an edge in the cellular technology sector.

In addition, the merger served to give both companies access to a more geographically diverse market, by combining Lucent’s large U.S. customer base with Alcatel’s strong position in the European market. At the time of the merger’s completion 35% of Alcatel-Lucent’s sales were coming from Europe, versus 34% in North America and 31% in other regions.

Lucent and Alcatel aren’t the only equipment vendors to get ideas about consolidation, however. Nokia and Siemens reached an agreement in June 2006 to consolidate their respective networking units, again creating a much stronger position globally.

Analysts are expecting the networking sector to be especially merger-prone in the next few years, as more and more corporate customers make the move to IP-based communications. Gear makers vying for the enterprise market will likely follow the lead of Nokia and Siemens in the years to come, combining their resources to speed up the transition to digital voice and data convergence.

When discussing mergers among equipment vendors, one not forget the enormous role of telecom providers. Recent mergers among carriers, especially in the U.S. market, have put the service providers that buy telecom equipment in a much stronger position business-wise.

The sheer size of carriers like AT&T Inc. — which recently completed its $85 billion acquisition of BellSouth Corp. — gives them more clout as buyers, allowing them to negotiate better deals on telecommunications gear.

We should also keep in mind that overall demand for cellular, broadband, and networking equipment in North America and Europe is in a period of decline now that most carriers have the bulk of their broadband and 3G cellular facilities in place. This is putting pressure on equipment vendors to merge, so as to cut costs and better target emerging markets.

Overall, it’s fair to say that there were a number of strong currents behind the increased merger activity in 2006 – currents that likely won’t be going this year or anytime soon.


Published by TeleClick Enterprises
Edited by Jeremy Maddock