The recent news that Alcatel (news - alert) and Lucent (news - alert) are in advanced stages of merger talks should not in and of itself be a surprise. The companies after all came deliciously close to hooking up back in 2001. Now however, it seems the merger has a very real chance of coming to fruition, and that has market watchers salivating over the prospects of a potential telecom free for all, in which the predators at the top of the telephony food chain (Cisco, Nokia, Motorola, Nortel) may start to feast on the smaller, more easily digestible morsels (Juniper, Sonus, Tellabs, Ciena).

Some of the more intriguing possibilities call for more mega-mergers, with Cisco (quote - news - alert) perhaps buying Motorola, thus giving it instant credibility in the wireless space. I wonder what colors will be added to the Cisco RAZR line?

Recent rumors also had Siemens selling their communications division and Ericsson looking to buy Juniper.

I asked Joe McGarvey of Current Analysis for his thoughts on the potential of a telecom feeding frenzy and what it might mean to the IMS (define - news - alert) market.

“I think a logical alternative to a merger of equals, as Alcatel and Lucent are talking about,” McGarvey told me, “is for a large supplier, such as Ericsson or Nortel to start picking up some of these smaller independent companies that play in the IMS space, near the periphery. I’m talking about policy control players or application server makers, etc. These are companies that have been around five or six years and are pretty much staying above water.

“These companies may be ripe for acquisition at a reasonable price in the future. Carriers are insisting on these players developing IMS-interfaces and other IMS-related artifacts in order to place them in trials. The problem is that these trials aren’t likely to produce revenue for another year or more. That’s a tough combination — added development costs and delayed revenue — for a small company to handle. It could be that some of these companies could be acquired — as the financial pressure mounts — for a reasonable price.

“It’s certainly an alternative to a mega merger. While a supplier acquiring a smaller company isn’t gaining any market footprint, it also isn’t dealing with significant product overlap and integration headaches,” McGarvey concluded.

One of the more circulated quotes making the rounds in the days following the Lucent/Alcatel news was attributed to Pip Coburn, chief strategist and principal at Coburn Ventures, a technology investment advisory firm, who said, “This (Lucent-Alcatel merger) could create a domino affect, and I hope it does.”

Why Now?

The recent wave of consolidation in the service provider market should serve as a prequel to what we might expect to see in the equipment manufacturer space. Let’s face it, for every carrier that gets acquired, that’s one less potential customer for a gear maker to chase after. And with carriers increasingly looking to offer all types of services over all types of next-generation IMS-compliant infrastructure it makes sense for those who would be leaders in this space to flesh out their offerings — either through long development cycles, or strategic acquisitions — so they can service the service providers to the fullest.

I guess it remains to be seen what will come to pass. But suffice it to say that hungry eyes are currently focused on the
telecom menu.

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