The collapse of AT&T's deal to buy Deutsche Telekom's U.S. wireless unit may be welcome news for network equipment makers, as money earmarked for the merger will be freed up for investments.

Both AT&T and T-Mobile USA scaled back spending on coverage and networks in their effort to push through the merger, which would have catapulted AT&T to the No. 1 spot in the U.S. market, ahead of rival Verizon Wireless.

AT&T withdrew its bid on Monday amid powerful regulatory opposition.

We believe that AT&T -- in recent months -- had significantly dialed back Q4 spending in order to apply leverage in its fight with regulators, Jefferies analyst George Notter said.

Recent checks with equipment makers and vendors suggest AT&T capital spending is expected to pick up strongly in the first quarter and that the company will be fairly aggressive in spending in the first half of 2012, Notter said.

Jeff Kvaal of Barclays Capital said equipment makers close to base station vendors would benefit most because AT&T had halted spending around September, mostly around mobility.

Vendors with less direct exposure to AT&T's wireless spending -- such as Amdocs, Ciena, Cisco, F5 and Juniper -- will benefit indirectly, he said.

The largest vendor beneficiaries should be AT&T's incumbent 4G base station vendors, Ericsson and Alcatel-Lucent. T-Mobile's 3G suppliers are Alcatel-Lucent and Nokia Siemens Networks, Kvaal said.

Alcatel-Lucent stock jumped 10.6 percent and Juniper Networks gained 9.3 percent in afternoon trading Tuesday. Cisco shares rose 4.1 percent while Ericsson advanced 3.6 percent.

Before AT&T dropped its pursuit of T-Mobile USA, Kvaal said,

he had expected slowed spending to continue into 2012.

Morgan Stanley's Ehud Gelblum said that while a major overhang to spending had been removed, he cautioned that fundamentals could take longer to turn.

He said he was keeping a cautious view on the sector in light of potential bad news between now and January earnings season as the macro outlook remains shaky and European carrier spending remains weak.

UBS struck a more pessimistic tone, saying that while the knee-jerk equipment stock reactions seem to argue AT&T will ramp up capital spending with the merger uncertainty over, we find this outcome hard to believe.

UBS' Nikos Theodosopoulos argued that AT&T's need for more spectrum remained unchanged and that it now has to pay a $3 billion break-up fee and hand over some of its spectrum to T-Mobile.

Additionally, he said T-Mobile USA was unlikely to invest in the build-out of a new network.

The good news for equipment vendors is (AT&)T/T-Mobile capital spending has already been so constrained, prior to learning the outcome of the potential acquisition, that capital spending is unlikely to get worse from current levels, Theodosopoulos said.

(Reporting By Nicola Leske; editing by John Wallace)

Cisco Systems