By LAURENCE FROST - Associated Press Writer

PARIS (AP) -- Alcatel SA and U.S. telecom equipment maker Lucent Technologies Inc. have agreed to merge, the companies said Sunday.

The deal will create a new telecom equipment maker with sales of $25 billion and will generate $1.7 billion of savings within three years, the companies said in a joint statement.

Alcatel said it agreed to buy Lucent to better combat intense competition in the telecommunications equipment market.

AP Wire