On Wednesday, Nokia confirmed that it's buying French rival Alcatel-Lucent for 15.6 billion euros ($16.6 billion) to create the world's largest wireless-network equipment supplier.

Alcatel-Lucent was formed from the marriage of France's Alcatel and the US's Lucent Technologies in 2006. It currently generates about 40% of its sales in North America.

According to analysts, although the tie up will make Nokia stock owners face a period of restructuring costs, scrapped dividends and diluted share prices, for Alcatel shareholders, it is almost beneficial.

On Tuesday, Mathias Lundberg, analyst at Swedbank, said, "I'm not sure such a deal would create value for Nokia. It could come at a high price with high risk in regards to integrating the business. I would see Alcatel as the winner in this".

However, Martin Nilsson, analyst at Nordea Equity Research, noted that the merger could benefit Nokia in a long run. According to him, the mobile-infrastructure market, where Nokia primarily operates is deteriorating over the next few years.

The merger could create a need for the company to branch out to other parts of the telecom industry. He said that Alcatel is stronger in fixed operations and routing.

He added that Nokia is doing the right thing by teaming up with Alcatel as will get them a much broader portfolio, much more scale and have more R&D firepower. However, the tie-up adds a lot of volatility on short term.

There are challenges if the merger goes ahead. There is an issue of merging technical platforms and streamlining products apart from the logistical details and restructuring costs of creating a single entity with 100,000 employees from different cultures.

Shares of Alcatel-Lucent rallied 16% on Tuesday, but dropped 9.2% on Wednesday. Nokia shares rose 4.8% on Wednesday, recovering from Tuesday's 3.6% loss.