Lucent Scores $5B Verizon Deal

Lucent Technologies Inc. (NYSE: LU) has secured a monster deal worth “at least $5 billion” with Verizon Wireless for the future upgrade of the carrier’s national voice and data network (see Lucent Wins Verizon Contract).

The deal includes the $525 million contract Verizon awarded to Lucent in March this year for the deployment of its CDMA2000 1xEV-DO (Evolution, Data Only) network (see Verizon Has $692M for EV-DO, Verizon Picks Lucent, Nortel, and Verizon Repeats on 3G).

But aside from the EV-DO deployment already announced, what exactly is Verizon spending the cash on? A joint release from both companies states that Lucent will supply kit “spanning its entire portfolio, including Bell Labs-developed wireless, optical, and data networking equipment along with network management and applications software.”

“This is a frame agreement,” adds Lucent spokesman Ichiro Kawasaki, “meaning Verizon Wireless can spend the money however they like. That could mean increasing voice capacity by adding new cell sites and expanding coverage, or building out additional markets with EV-DO. It is a pretty open agreement focused on increasing coverage and capacity.”

Lucent is also prepared to deploy EV-DV (Evolution, Data and Voice) technology at a future date, should Verizon choose to rollout a network. “We are going to have DV available for trials late 2005, and commercial availability will follow in 2006.”

Verizon was unavailable for comment at press time.

Analysts have been quick to talk up the importance of the deal to Lucent. “While a $5 billion contract should normally be a big enough positive for any company, this contract is doubly so for Lucent,” writes Lehman Brothers’ Steve Levy.

“Compared to the first $5 billion contract signed in March 2001, Lucent’s total revenues have declined by approximately two thirds, and thus this contract is much more meaningful. This contract [also] looks to cover a more comprehensive set of products and services than the original contract did. In particular, we note that Lucent Worldwide Services will now support non-Lucent markets with network optimization, integration, planning, and design and deployment services.

“Given the lowering of all carrier capex spending, and the likelihood that Verizon could spend the full amount in much less than the six years, and the use of the term ‘at least,’ we see this as a big positive for Lucent.”

Lucent shares have risen on the back of today’s deal, up 9 cents to $3.47 per share at press time.

— Justin Springham, Senior Editor, Europe, Unstrung