January 09, 2004, 10:09 AM — Nortel Networks Corp.'s big sale of IP networking equipment to U.S. carrier Verizon Communications Inc. is significant in two ways, say industry analysts: it suggests that phone companies are serious about IP, and that Canada's former high-tech darling Nortel is on the mend.
"It's a reassurance," said Brownlee Thomas, a Montreal-based analyst at Forrester Research Inc. "We were worried about Nortel a few years ago, wondering if they would survive."
On Tuesday Nortel announced that it had signed a letter of agreement with Verizon that would see the New York-based carrier purchase a boatful of Nortel IP switches and gateways. The deal is meant to help Verizon make the big shift away from old-fashioned TDM (time-division multiplexing) network gear to a packet-switched environment, which should spell increased network efficiency and novel applications for Verizon business and residential customers by mid-2004.
Verizon plans to purchase Nortel's Succession Communication Server (CS) 2000 softswitches, Passport Packet Voice Gateways, Succession Multiservice Gateway 4000s, Succession Media Gateway 9000s and Multimedia Communication Server 5200s. Nortel will be Verizon's exclusive supplier of VoIP (voice-over-IP) infrastructure over the next three months, according to a Nortel press release.
The news excited financial investors; Nortel's stock price on the Toronto Stock Exchange (TSX) went up -- a nice change from the precipitous fall it took a few years back, when investors decided that telecom vendors were all show and no go.
The Verizon deal is "a step in the right direction for recovery," said Ronald Gruia, an analyst at Frost & Sullivan in Toronto. But it's just a step, he added. "It's the start of the first period and Nortel just scored a goal."
He pointed out that it would take while for Verizon's switch to IP to come to fruition. "This is not a process that can be done overnight. The whole project could take five to 10 years."
Not to mention, Gruia said, that the deal rests on a letter of agreement. Nothing is set in stone, although Nortel and Verizon said they plan to make things more permanent with a five-year arrangement in the coming months.
Thomas said the Verizon announcement is a vote of confidence for IP. "The technology has clearly and definitively arrived."
She also pointed out that Nortel is playing to its strength. The Brampton, Ontario, networking vendor is making headway with its core audience; service providers like Verizon.
"The carriers are going to be turning to their established partners" when it comes to implementing IP, Thomas said. She added that Nortel correctly identified the carrier market's needs and focused on wireless and IP network gear.