A far more potent threat to their plan to create a company with a market capitalization of 30bn euros ($36bn) is the wave of economic nationalism that has swept both the US and France.

However, Alcatel CEO Serge Tchuruk has talked of the need to create a global powerhouse in a global industry, and Lucent CEO Patricia Russo refused to be drawn at a press conference in Paris at suggestions that recent disturbances in France about labor market flexibility suggested that the French had no great liking for capitalism.

A plan to reduce the combined workforce by 10%, or about 8,800 jobs, as part of a plan to yield 1.4bn euros ($1.7bn) in cost synergies, has already produced growls of disapproval from French unions. The other obstacle is both companies’ involvement in secret government work, given the suspicion with which the US and France view each others’ foreign policies.

Murray Hill, New Jersey-based Lucent hopes to ease Washington’s worries with an independent US subsidiary managed by three US citizens acceptable to the government, who run the secret work that its Bell Labs R&D arm conducts for the US government.

Alcatel has a similar problem with its satellite operations, and is currently in talks to merge them with those of defense group Thales SA, where it would become a shareholder along with the French government. Directors nominated onto the Thales board would be European Union citizens.

Alcatel and Lucent called off a merger in 2001 just before the dot-com collapse, but have been driven back into each other’s arms by market forces. These include the huge mergers of carriers in the US, the rise of Chinese suppliers Huawei and ZTE, technological changes such as the move to IP networks, and the drive by carriers to offer triple-play services.

While 66% of Lucent’s revenue is in North America and 49% of Alcatel’s is in Europe, the combined company will derive 34% of its revenue in North America, 35% in Western Europe, and the remaining 31% in the rest of the world. While combined 2005 revenue of $25bn is larger than the $24.8bn achieved by Cisco, a market value of $133.3bn values Cisco at 5.4 times sales while the $34bn value of a combined Alcatel/Lucent is only 0.7 times sales.

The combination has been widely ridiculed as a merger of equals. The all-paper transaction will give Alcatel shareholders 60% of the combined company though Lucent will have equal representation on the 14-strong board. The phrase merger of equals refers to the fact that Alcatel is not paying the traditional control premium normally paid for a company being taken over.

While this will also ease political worries about the French takeover of an American company, particularly one that runs an iconic research institute like Bell Labs, it has raised fears that senior jobs will be shared out between nationalities, rather than purely on merit.

The question now is who will be the next candidates for a widely expected consolidation in the sector, particularly as the increased muscle that Alcatel/Lucent brings to the market will force rivals to seek protective partnerships.

Nortel Networks Corp, the sole remaining supplier with an across the board product range, looks an inevitable acquisition candidate as it nears the long restatement of its figures. With high single-digit growth forecast for this year, its $13.4bn market value could make it an attractive candidate for LM Ericsson Telefon AB.