With the telecom service providers contracting faster than a bride’s waist in weeks leading up to a wedding, it should come as no surprise to anyone that Lucent and Alcatel are entertaining thoughts of a $33 billion merger, that would combine two of the biggest equipment suppliers to the “phone companies.”

The same rumor had surfaced five years ago, but this time, according to The Wall Street Journal, talks are pretty serious, and are at an advanced stage. Lucent Technologies chief executive Patricia Russo will become the chief executive of the combined company, the WSJ reports.

“We can confirm that Lucent and Alcatel are engaged in discussion about a merger of equals that is intended to be priced at market. There can be no assurances that any agreement will be reached or that a transaction will be consummated. We will have no further comment until an agreement is reached or the discussions are terminated.”

With Lucent’s market cap at around $12 billion and Alcatel being valued at $21 billion, I am not sure what they really mean by “merger of equals.” It must be lost in translation!

The deal between the two companies should come as no surprise to anyone. For most of the post-1984 split years, Lucent was the biggest supplier to the phone companies. However, the vendor financing, the Broadbandits and the telecom crash crushed Lucent.

Meanwhile, Alcatel, an also-ran in the telecom equipment market on the other hand hadn’t gone overboard with vendor financing and did a couple of things right: like hitch its wagon to DSL broadband technology. It slowly increased its presence, and market share. (Read my piece, Gorilla In The Mist, from 2003 on Alcatel, which first appeared in Red Herring. They indeed do some of the things that were suggested in the story, like focus on the edge of the network.)

As Bells have consolidated, the Alcatel’s gear is now powering most of the broadband networks, and future triple play projects like Project Light Speed. Lucent, meanwhile has seen its role shrink, but still has managed to hang on to the wireless business from the Bells. The two companies, have a good share of the Bell cap-ex. Together, they have a lot of things going for them. Here is a list of where together they will be #1 in installed base. Such as dying but still money generating Class 4 and Class 5 switches, Frame Relay and ATM (The old Cascade/Ascend and Newbridge) and of course, DSL.

Alcatel has a decent routing portfolio, and it has been winning market share in new broadband networks, with some of its new edge routers. Alcatel, still has some decent enterprise offerings. Beyond that, the two companies have a product portfolio that could make a good complimentary fit. Alcatel is strong in optical gear (SONET and WDM), and the Digital Loop Carrier equipment space. CDMA Wireless, where Alcatel is weak, Lucent is strong in CDMA.

But its not all hunky dory. The cultural challenges of integration, the control of French government over Alcatel affairs, and possibility of significant layoffs could be a big problem for the deal going forward.

The best thing these two companies could do is buy Juniper and become a serious headache for Cisco, but that’s in the future. But this will not be the first merger. Expect some really radical movements – Cisco and Nortel; Cisco and anyone; Siemens + Ericsson + Juniper …. on and on. You know who wins in this – investment banks. Phat Phees Baby! Or as they say on Wall Street, Good Times are back.