Alcatel-Lucent's revenue warning is raising worries about weaker U.S. wireless network spending, which could also hurt other communication equipment makers such as Nortel Networks Corp.

While telecom operators AT&T Inc and Verizon Wireless say they are not cutting spending, Alcatel-Lucent blamed North American wireless customers for its lowered quarterly revenue forecast issued on Thursday.

Carriers may have found demand for third-generation high-speed wireless services was weaker than expected, analysts said. 3G has been slow to gain ground in the U.S. market.

Alcatel-Lucent had factored some additional contributions from Verizon and Sprint and a sharp ramp-up from AT&T that didn't materialize, said RBC analyst Mark Sue.

Alcatel-Lucent is the leading supplier of wireless network equipment in the United States, trailed by Nortel, Motorola Inc and Ericsson. Ericsson is the strongest outside the United States, and gave a rosy outlook this week.

Given that smaller suppliers Andrew Corp and Powerwave have a high exposure to U.S. market, analysts said they could also be hurt by a spending slowdown.

Nortel shares fell 4.7 percent on Thursday after the Alcatel-Lucent warning. Both Lucent and Canada's Nortel supply Verizon Wireless, owned by Verizon Communications Inc and Vodafone Group Plc, and Sprint Nextel Corp.

People are making the inference that if you live in a bad neighborhood, all houses in the neighborhood go down, said Paras Bhargava of BMO Capital Markets.

Nortel spokesman Mohammed Nakhooda declined to comment on the company's 2007 revenue targets, but noted that it was growing faster than most rivals, including Alcatel-Lucent.

We expect to continue seeing growth, he said.

Some analysts said Alcatel-Lucent's problems could be company specific, but Bhargava said investors were right to worry even if the warning turned out to be an isolated case. In general there's a lot of competition in that business, said the analyst, who rates Nortel at 'market perform.'


Neither AT&T nor Verizon would comment on Alcatel-Lucent's numbers, but both said 3G demand was strong and that they were spending heavily on upgrading and building network capacity.

AT&T spokesman Michael Coe said any suggestion that the number-one U.S. mobile service was pulling back on 3G wireless spending was absolutely false. He said most of its network spending this year would be in the second half.

AT&T has been slower building its high-speed mobile service than Verizon and Sprint, which already have advanced services in most of their markets.

AT&T has said it expects 2007 wireless network spending to be lower than the $7 billion it spent in 2006 as it completes network integration related to its merger with Cingular.

Verizon Wireless spokeswoman Nancy Stark said the company has not changed its 2007 spending target of $6.6 billion to $6.8 billion. We're not slowing down investing in our network, she said, citing geographic and capacity expansion.

Sprint's James Fisher declined to comment, beyond pointing out that his company had reiterated its 2007 spending target of $7.2 billion on its second-quarter conference call in August and said it was half-way through its 2007 wireless budget.

But some analysts still argue that these providers would be investing more on their networks if 3G demand was stronger.

They're holding back on spending because it doesn't pay, said Charter Equity Research analyst Ed Snyder, who noted that text messaging, one of the most commonly used data features, does not require a subscription to high-speed services.

In the industry as a whole there are clearly too many suppliers and not enough demand, he said. What will happen is the existing players will get smaller.

RBC's Sue also said U.S. equipment sales could slow as operators such as Verizon and Sprint complete major upgrades.

I think you're going to wait for a couple of years before the next major technology upgrade, he said.

However, Paul Sagawa of Sanford Bernstein is more optimistic. He expects AT&T to accelerate spending on 3G.

I don't believe on a permanent basis the carriers can scale back, Sagawa said. They know they've got to spend.