U.S. telecommunications equipment maker Lucent Technologies and its French rival Alcatel SA confirmed on Friday that they have resumed merger negotiations.

The two companies, which discontinued merger talks five years ago after a disagreement over whether it would be a merger or a takeover, refused to comment beyond a terse statement that any agreement will involve a merger of equals.

Times have changed for Lucent, one of the leading equipment suppliers through the bubble years of the late Nineties.

The company, which buckled under the weight of the credit it had extended to dozens of failing carriers, has needed to adjust its business strategy in recent years in a rapidly consolidating U.S. telephone market.

A merged Lucent/Alcatel will have $25 billion in annual sales and a strong presence in the wireless, services, and research markets, courtesy of Lucent, and in the wireline access equipment market, courtesy of Alcatel.

In the United States, Alcatel has been a long-term supplier of DSL equipment to AT&T, while Lucent is a supplier of wireless and wireline equipment to both Verizon Communications and SprintNextel. So a merged entity would have a wide berth in terms of U.S. customer connections.

Lucent is also a player in the rapidly emerging IP Multimedia Subsystems (IMS) market, an area of technology that allows for the integration of voice, video, data, and wireless media on a common network.

“I doubt there are revenue synergies to be had, but there are cost synergies available to them,” said Muayyad Al-Chalabi, a principal at Adventis, a Boston-based consulting firm. “A fragmented supplier base puts a strain on the suppliers because they have to compete for fewer buyers, because of consolidation.”

Shares of Lucent rose $0.22 to $3.04 in recent trading, while shares of Alcatel climbed $0.16 to $15.61.

Nothing to Gain for Alcatel

Lucent has been cutting jobs for the last few years and focusing on growth markets within its portfolio, yet Richard Windsor of Nomura Securities sees little benefit to Alcatel in a Lucent merger.

“We believe that the baggage that Lucent carries far outweighs the attractions of acquiring these assets,” he said. “Lucent remains very unprofitable. Wireline is still losing money, and mobility is far below the levels of profitability of its smaller competitor Nortel.”

Lucent, he said, is still having problems adapting to market changes and is still affected by legacy problems from the go-go Nineties, such as its declining voice-switching product portfolio.

Also, the multinational nature of the deal could jeopardize Lucent’s ownership of the legendary Bell Labs. Control of Bell Labs by a U.S./French company could create a major stumbling block for the U.S. government.

“There is also a strong risk that should Alcatel agree to merge with Lucent, it will be forced to divest Bell Labs, given its involvement with the U.S. government,” said Mr. Windsor.

Mr. Windsor believes that Alcatel would benefit only from cherry-picking Lucent’s complementary and profitable product areas, rather than attempting a wholesale merger with the entire company.

“There will be merger and divestment in different product areas,” said Mr. Al-Chalabi. “That happens in any merger of equals. But what lives and what dies will be determined by market conditions, not by the parochial interests of either Alcatel or Lucent.”