Alcatel-Lucent’s smooth integration looks like it may have hit some rocky terrain. The Financial Timesreported last week that Alcatel-Lucent is losing its massive UMTS contract with AT&T to Ericsson, which, if true, would be quite a surprise. Not only is the contract quite large (about $700 million) but much of the work for that contract is presumably already complete.

Cingular named its UMTS vendors more that two years ago and has been rolling out its 3G network slowly but steadily ever since. What’s more, Cingular apparently tapped Lucent Technologies as its primary vendor for its IP multimedia subsystem platform, the central elements of which most have already been deployed considering AT&T has begun launching IMS-based applications like its Video Share service.

The pressure on Alcatel-Lucent isn’t new. In May Telephony’s Ed Gubbins reported that competitors have begun picking away at Alcatel-Lucent’s formidable combined market share, naming AT&T specifically as a company that had begun cutting back on UMTS spending post-merger. Alcatel-Lucent of course maintains everything is hunky dory, adding that its position as a critical 3G supplier to AT&T remains intact.

“Our market share has remained relatively stable, and we continue to work to meet our commitments to maintain our market share,” Alcatel-Lucent said in a statement Friday. “To speculate otherwise is both inaccurate and misleading.”

The vendor has pointed to big wins it has landed post-merger, such as $6 billion deal with Verizon Wireless in April for EV-DO Revision A equipment and elements of its new Advances to IMS (A-IMS) architecture. Much of that deal was cemented long before the merger as Lucent had been building out VZW’s Rev. A for most of the previous year. Alcatel-Lucent wireless business group president Mary Chan, however, pointed out how the deal had grown, rather than remained static post-merger. The Alcatel side of the equation provided IP and Ethernet routers and packet switches, which were not part of the original Lucent agreement, thus turning a radio equipment and software deal into a complex integrated core and access network build.

In the WiMAX business area -- which was barely a revenue producing business pre-merger -- Alcatel-Lucent has found a bright spot. It lost out to competitors Motorola, Samsung and Nokia Siemens Networks for the big contract, Sprint, but it has been quietly racking up more than a dozen commercial contracts around the world for its beamforming software-defined-radio base station -- those deals are by no means small. Alcatel-Lucent has scored a nationwide broadband access contract in Russia and last week revealed it is building a mobile WiMAX network in Sao Paulo and two other Brazilian cities. Alcatel-Lucent’s competitors have repeatedly said they are running up against the vendor and almost every contract competition. In WiMAX, at least, Alcatel-Lucent seems to be gaining ground rather than losing it.

Still, the WiMAX market is tiny compared to the global 3G business. Alcatel-Lucent has invested heavily in the market -- buying Nortel Networks’ UMTS business last year--to compete with dominant players Ericsson and NSN. AT&T’s 3G network is certainly a gem it doesn’t want to lose.

Understandably, Alcatel-Lucent CEO Patricia Russo is coming under pressure to gain any lost ground, whether real or perceived. The board, however, has stood behind her while urging her to come up with a plan to turn the company around. At least she’s not alone. Alcatel-Lucent isn’t the only company having troubles post-merger. Siemens last week expressed disappointment with the progress of its networks venture with Nokia. Even carriers aren’t immune. Yesterday, Sprint forced out CEO Gary Forsee after several post-merger quarters of poor financial and operational performance. It’s probably not coincidental that the vendor the pink paper identified as the benefactor of Alcatel-Lucent’s problems with AT&T was the only vendor not to undergo a major overhaul of its 3G business in the last year: Ericsson.

E-mail me at kfitchard@telephonyonline.com.