The combination of France's Alcatel and Lucent of the US was supposed to create a powerhouse that could compete with Sweden's Ericsson, the industry leader, and Huawei Technologies, a fast-growing Chinese rival.

But instead,Alcatel-Lucent has looked weaker than its predecessor companies. Three years after the deal was completed, it has yet to report a net profit.

The transaction was structured as a nil premium merger, and when it was announced in April 2006, Alcatel and Lucent said the combined company would have a market capitalisation of €30bn. On Tuesday, the company's market value was €5.6bn ($8bn).

Ben Verwaayen, Alcatel-Lucent's chief executive since 2008, is hoping the company can break even in its 2009 financial year. But his target is not to break even at the net income line: he is aiming at avoiding a loss at the level of adjusted operating profit. The "adjusted" tag excludes items such as goodwill impairments.

"Alcatel-Lucent is doomed to remain a low profit, low-growth company, struggling with businesses that are either not very profitable or sub-scale," says Pierre Ferragu, analyst at Bernstein.

Most analysts agree the rationale for the Alcatel-Lucent merger was well founded. By 2006, western telecoms equipment makers were facing new competition from low-cost rivals.

Alcatel and Lucent correctly saw economies of scale as the route to better profitability. The combined company would look to spread research and development costs over a bigger revenue base so as to improve profit margins.

Alcatel-Lucent would also secure cost savings by cutting jobs and eliminating overlapping products.

But the integration of the French and American companies was badly executed. Part of the problem was alleged tensions between the founding chairman and chief executive Serge Tchuruk, Alcatel's former chairman, and Pat Russo, Lucent's ex-chief executive.

Analysts say management inertia, together with cultural and political differences, help explain why the company failed to quickly rationalise its product range.

For example, it ran up losses by persisting with three different network products for mobile phone operators based on third generation wireless technology called WCDMA.

Analysts say Ericsson and Huawei saw Alcatel-Lucent's focus on integration as an opportunity to increase their market share.

Ms Russo famously complained of "attacks" on Alcatel-Lucent's client base in 2007. She ended up giving away much of the company's synergies to customers, in the form of cheaper deals, in a desperate attempt to keep them.

The economic downturn only compounded Alcatel-Lucent's troubles, because fixed line and mobile phone operators cut their network equipment spending.

However, equipment maker Nokia Siemens Networks has also run up losses since its formation in 2006 from assets owned by Nokia and Siemens.

And at least Alcatel-Lucent looks like surviving. Nortel Networks, the Canadian telecoms equipment maker, filed for bankruptcy protection last year and is now being broken up.

Source:FT.COM