LONDON--A marriage between Finland's Nokia Corp. and French rival Alcatel-Lucent SA could create the world's largest telecommunications-equipment giant, at least by revenue, while shrinking the number of global telecoms suppliers and strengthening an important vendor for U.S. carriers.

Still, analysts said that despite a highly concentrated market for telecom gear, suppliers haven't been able to flex muscle over pricing-power lately. And a combined Nokia and Alcatel could provide a rival about the same size as industry leaders Ericsson and Huawei Technologies Co., and actually pressure prices, as all three compete for each other's customers.

"It is an intensely competitive sector," said Rick Mattila, an analyst at Mitsubishi UFJ Group. Huawei, a relative newcomer, has been pressuring prices in recent years. In addition to the industry's "Big Four," a handful of relatively small Asian gear makers also compete for customers.

On Tuesday, Nokia said it was in advanced talks to buy Alcatel in a deal that, if it goes through, would create a European equipment giant with a combined market value of $40 billion at current prices. Combined revenue for the two companies in 2014 was about $27 billion, edging out rivals Ericsson and Huawei in terms of sales last year.

A ramped-up Nokia could compete head-on with Ericsson and Huawei for carrier customers. All three build and sell infrastructure such as cellphone masts, towers and relay stations at a time when technological advances and consumer demand for more data on their smartphones and other devices have triggered massive investment in network infrastructure by carriers.

Consolidation could also cut costs of research and development, which may filter down to the price a merged company could afford to offer.

"It could be a good thing" for carriers, said Sylvain Fabre, an analyst at research firm Gartner.

Still, even before the talks were disclosed, carrier executives have worried about having too few suppliers in the market. In the wireless sector, for instance, Ericsson, Huawei and Nokia already control 80% of the global market by revenue, according to Bernstein Securities. Alcatel-Lucent holds another 10% share.

U.S. operators were supportive of the possible combination. Having fewer vendors would make things easier by streamlining their technology roadmaps, and give the newly combined company more financial strength to develop new products, U.S. wireless executives said.

Big European telecom carriers weren't talking about the merger talks early on Tuesday. Representatives for Vodafone Group PLC, the world's second largest carrier by subscribers behind China Telecom Corp., declined to comment. U.K. fixed-line incumbent BT Group PLC, which is looking to complete a deal for mobile operator EE, also declined to comment, as did Orange SA.

A merger would be a way for Nokia to boost its share of the competitive and profitable U.S. wireless market, where Alcatel Lucent has roots. The company was formed in 2006 with the merger of Alcatel and Lucent Technologies, which AT&T Inc. had spun off.

AT&T and Verizon Communications Inc. together spent more than $38 billion on capital expenditures in 2014. Ericsson has the largest share of the U.S. market, at 33%, followed by Alcatel-Lucent with 27% and Nokia with 20%, according to Infonetics. At 11% share, Samsung will trail far behind if the companies reach a deal.

Chinese vendors are effectively barred from the U.S. market, making it even more attractive for the European vendors. T-Mobile and Sprint signed agreements with the U.S. government that allow it to review vendor selections. A 2012 congressional report recommended U.S. telecom carriers avoid using networking gear from the China-based Huawei due to alleged national-security risks. Huawei has denied the allegations.

While Nokia does work for AT&T and Verizon, its primary footprint is with the U.S.'s two smaller carriers, T-Mobile US Inc. and Sprint Corp., which both use it for portions of their LTE wireless networks. AT&T and Verizon rely more heavily on Ericsson and Alcatel-Lucent.

If a deal is consummated, it will almost certainly go through review by the Committee on Foreign Investment in the United States, said Farhad Jalinous, a partner at Kaye Scholer LLP who used to be part of such reviews. CFIUS scrutinizes and puts conditions on transactions with national security implications.

Mr. Jalinous said the deal would be subject to the review because both companies play a major role in the U.S. telecommunications networks and because Alcatel-Lucent already operates under certain agreements as a result of its acquisition of Lucent.

Write to Simon Zekaria at simon.zekaria@wsj.com

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