Verizon Communications Inc. (NYSE: VZ) is getting close to choosing vendors for a new long-haul optical network, says one Wall Street analyst.

Yesterday, Paul Silverstein of Needham & Co. published a research note stating that Ciena Corp. (Nasdaq: CIEN), Corvis Corp. (Nasdaq: CORV), Innovance Networks, Lucent Technologies Inc. (NYSE: LU) and Siemens AG (NYSE: SI; Frankfurt: SIE) have all made the "short list" for a project that will dramatically expand the carrier's long-haul optical network.

Silverstein estimates the buildout could generate between $100 million and $200 million in optical equipment revenues over the next two to three years, making it one of the more significant contracts in the industry. He noted that Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and Nortel Networks Corp. (NYSE/Toronto: NT) did not make the short list. He expects the supplier or suppliers to be chosen by the end of this year.

Verizon declined to comment.

Verizon issued a request for proposal to vendors in early August this year (see Verizon Deal: Too Soon to Hope?). Details weren't available at the time, but many analysts speculated that it was connected with Verizon's plans for building its new nationwide IP network (see How Will Verizon Go National?).

While there's no question that Verizon has been looking at long-haul optical equipment, some analysts say the carrier is still investigating its options, and that any equipment valuations are part of its cost-benefit analysis. "We suspect it's more likely a fishing expedition," says Simon Leopold, an analyst with Merrill Lynch & Co. Inc..

Up to this point, Verizon has leased capacity from wholesale carriers. While the carrier has publicly stated that it would like to have its own transport network, Leopold says it hasn't determined whether or not that would be the most cost-effective solution. He believes it could still be a while before Verizon crunches all the numbers and suppliers realize any revenue from a potential deal.

Steven D. Levy, an analyst with Lehman Brothers, also suspects the company is still debating "buy-versus-build" scenarios. But he says that if Verizon does build its own long-haul optical transport network, it would represent an important shift in momentum for the technology segment, which has long been languishing in the doldrums.

— Marguerite Reardon, Senior Editor, Light Reading