- The Washington Times - Tuesday, March 28, 2006

NEW YORK (AP) — If Alcatel SA of France successfully bids on Lucent Technologies Inc., ownership of the transistor’s birthplace may be heading overseas.

Although Bell Labs no longer dominates the research world, an acquisition by a foreign company still could raise security issues because the New Jersey-based laboratory conducts sensitive research for the government, particularly in military communications.

“Bell Labs would certainly be on the very short list of technology sources that they would want to maintain secure access to,” said George Calhoun, a management professor at Stevens Institute of Technology in Hoboken, N.J.

Alcatel and Lucent announced Friday that they were making a second attempt to negotiate a merger, after talks in 2001 ended without a deal. Alcatel has scheduled a board meeting tomorrow to review the merger talks.

A merger would give Alcatel a larger foothold in the U.S. telecommunications market and help the combined company cope with growing price pressures, analysts say, as larger phone and Internet operators emerge from a new wave of consolidation and demand discounts on their equipment purchases.

Although the deal is being framed as a merger of equals, Alcatel’s market capitalization is 50 percent larger than Lucent’s, so Alcatel shareholders would own a majority of the merged company.

Lucent has refused comment on its plans for Bell Labs, saying talks with Alcatel are ongoing.

Bell Labs is the former research arm of the old monopoly Bell telephone system, which U.S. regulators broke up in 1984. It stayed with AT&T; in the breakup but was spun off with Lucent in 1996.

Secure communications, encryption and eavesdropping are fortes of Bell Labs. Defense contracts made public in the past two years include the development of night-vision equipment, long-range laser communications, wireless data networks for mobile troops and high-capacity optical fiber systems.

Defense and industry analysts agree that Alcatel and Lucent would be able to get around any national security concerns.

A swell of political opposition, motivated by security concerns, recently forced Dubai government-owned DP World to drop its bid to run terminals in six U.S. ports.

Alcatel is in a better position because it is not owned by the French government. Nor is it new to U.S. shores: It has built a substantial business here through acquisitions.

The New York Times and the Wall Street Journal reported yesterday that the two companies were working on a way to mitigate security concerns.

They are looking at both the “wall of silence” model and a spinoff of all or part of the laboratories, the papers said, citing unnamed sources close to the negotiations. Alcatel and Lucent refused comment on the reports.

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