The April 2 merger agreement between Lucent and Alcatel shows how suppliers, seeing their carrier customers combine to gain breadth and scale, feel compelled to follow suit.

Nick Maynard, a senior analyst at The Yankee Group, calls the proposed merger "another confirmation of the telecommunications industry experiencing dramatic changes in business models, strategy and operations".

That structure consists of fewer, larger players for telecom vendors to sell into. It has been brought about by the multibillion-dollar acquisitions of AT&T and MCI by SBC and Verizon, respectively, and by AT&T's plans to acquire BellSouth.

These megamergers have been fuelled by increasing competition from cable companies, wireless operators, VoIP providers and low-cost overseas suppliers.

Even competitive local exchange carriers (CLEC) are feeling the urge to merge. In February, CTC and Choice One announced their intent to combine, and one week ago they announced plans to acquire Conversent Communications, to create what they say will be the second-largest CLEC in the USA.

On the equipment side, Asian suppliers such as Huawei Technologies and ZTE are becoming formidable competitors globally, consistently and drastically undercutting traditional North American and European vendors on price - and gaining significant market share overseas.

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 endeavours, eliminate the build-out of parallel networks (which reduces demand) and vanquish other redundancies.

They need to offer products and services to fulfil the new scope and scale of their combined customers, eliminate their own redundancies and generate savings.

Acquiring one another is seen as a way to do that and remain viable for the long term.

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

"We see Ericsson, Siemens and Motorola as potential consolidators and believe that Juniper, Redback, Ciena, Extreme, Foundry, ECI Telecom, and Hammerhead [Systems] are potential targets."

Vendors will choose their mates based on gaps they need to fill in their product portfolios.

Lucent and Alcatel have some redundancies in optical and broadband access, but their combination will make them number one in these markets, analysts note.

Their product offerings also align well in wireless. Lucent is strong in Code Division Multiple Access/Wideband CDMA, while Alcatel has a presence in GSM, which is pervasive in Europe.

Alcatel also has core and edge routers to complement Lucent's multi-service edge switches, and the combined company would obtain the number three position in this market, analysts say.

Both are strong in professional integration services. That helped Alcatel win the Project Lightspeed IP TV deal at AT&T, which accounts for 23% of Lucent's $9,4bn annual revenue.

Combined services will be a $5bn business for the merged company.

Both have common visions of next-generation networks built on IP Multimedia Subsystem (IMS) architectures, and a wealth of products to build these infrastructures, company officials say.

And, lastly, the combined Alcatel/Lucent will generate $1,7bn in cost savings within three years, says Lucent, CEO Pat Russo, who will head the combined company.

Savings will be sought by paring 10% of the combined workforce of 88 000, as well as through elimination of redundancies.