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Geographic reach key to successful merger

While Alcatel and Lucent’s CEOs have both stated that job cuts will follow their proposed merger the outlook for the Middle East is likely to be more positive, analysts in the region said last week.

While Alcatel and Lucent’s CEOs have both stated that job cuts will follow their proposed merger the outlook for the Middle East is likely to be more positive, analysts in the region said last week.

French comms vendor Alcatel and smaller US-based rival Lucent said last week that through a ‘merger of equals’ they plan to save more than US$1.7 billion within three years.

A large chunk of this cost saving will come through reducing headcount by 10% for the combined company — which equates to nearly 9,000 employees worldwide — if the deal goes through.

In the Middle East, Alcatel has 1,200 employees and
Lucent 300, but analysts said the new company may well look to add headcount here, as part of greater investment in the region.

“I wouldn’t expect there to be a major impact in the Middle East in terms of employees, in fact there may be more joining,” said Dr Kenn Walters, analyst and leader of global telecoms practice, Experton Group.

“In this region it will be a question of more people being added, more pressure and push being exerted, and better products and services being offered, because the emerging world is extremely important,” he added.

Both firms have highlighted the fact that the merged company would be more geographically balanced, making the merger beneficial.

While the Middle East and Africa (MEA) region was responsible for 14% of revenue in 2005 for Alcatel, for Lucent the region contributed just 1% last year. For the as-yet unnamed combined company, the MEA region would have contributed 9% of revenue in that period.

“The combined people, capabilities and customer relationships will enhance this competitive standing and give us the possibility to reinforce, at regional level, the role of the world’s leading global communications solutions provider,” Alcatel Middle East said in a statement to IT Weekly.

While the Alcatel side of the business will probably still be at the forefront here in the region, analysts said, customers here could still benefit from a greater push for Lucent products and technologies.

“The combined company has a good presence in the region because of Alcatel, but it’s mostly about products, rather than a complete change of strategy,” said Mark Rotter, IDC program manager MEA Communications.

“For the Middle East it will be a pure benefit: we will see additional products and synergies,” he went on to add.
Customers of both companies in the region include Saudi Telecom (STC) and Etisalat.

However, the proposed merger has not been universally welcomed. “It is hard to fathom, in our view, any combination of telecom equipment makers that would have a lower chance of succeeding than Alcatel and Lucent,” financial analyst firm Dresdner Kleinwort Wasserstein said in an equity note
last month.

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