Nortel Soars on Verizon VOIP Deal

Nortel Networks Corp. (NYSE/Toronto: NT) announced a juicy VOIP contract with Verizon Communications Inc. (NYSE: VZ), sending its stock up and adding more than $2 billion to the company’s market value over the course of the day (see Verizon Picks Nortel for Class 5 VOIP).

Verizon plans to deploy all of Nortel’s Succession line of VOIP equipment, including softswitches, media servers, and gateways, replacing traditional Class 5 switches from a variety of vendors, in its local and long-distance networks. Hosted VOIP and multimedia services aimed at residential and enterprise customers will be rolled out gradually, starting the middle of this year.

The contract, which is the outcome of an RFP (request for proposal) Verizon sent out in June 2003, has been awarded in record time, analysts say, as it usually takes the major carriers considerably longer to work through such big proposals.

The other striking part about this deal is that it was awarded to Nortel, in a part of Verizon’s network that also contains Lucent Technologies Inc. (NYSE: LU) Class 5 switches. Analysts say this is a major blow for Lucent, but hardly surprising given the setbacks the company has faced in the VOIP market (see Lucent Performs Softswitch U-Turn).

”Lucent’s made a lot of effort rebranding and repositioning against Nortel,” says Jon Arnold, VOIP analyst at Frost & Sullivan. "Taking a prime customer away is not a good sign for them."

Naturally, Lucent is downplaying the news. “Nortel is first with Verizon, but this will be a two-vendor game,” says Bill Price, a company spokesman. He points out that the deal is exclusive for 18 months only, meaning that Lucent has time to catch up and offer a decent migration strategy for its own Class 5 switches.

The deal raises other questions, specifically for the smaller, non-incumbent players in the market. Sonus Networks Inc. (Nasdaq: SONS) and Telica Inc. both had VOIP gateways deals with Verizon, but the deal with Nortel now makes these deals look much smaller. “These are going to become an increasingly smaller piece of the puzzle,” reckons Arnold.

That said, Verizon spokesman Ellsworth Edwards says the carrier is keeping an open mind about its VOIP technology partners. “Technology is changing very rapidly and this is a complex marketplace,” he says.

The deal isn’t quite done and dusted either. Nortel Networks and Verizon have executed an interim letter of agreement (LOA) covering the initial terms of the arrangement. The parties expect to replace this LOA with a five-year agreement within the next few months.

”The announcement today is indicative of the times we are in -- VOIP is hot and Verizon wants to be seen to be making the moves,” says Arnold.

For its part, Nortel says the deal represents the “most comprehensive” deployment of its VOIP technology in any network to date. It began deploying VOIP gateways in Verizon’s inter-city network and segments of the company's long-distance network in 2002.

Buoyed by the news, Merrill Lynch & Co. Inc. raised its rating on Nortel to Buy from Neutral, citing its dominance in this sector of the market (see Nortel Wins Cayman VOIP Contract, Nortel, BellSouth Team for VOIP, Nortel Wins China VOIP Deal, MCI Vouches for Nortel's VOIP, and Sprint Starts on Softswitches).

At 4 p.m. EST Nortel's stock was up 19.3 percent to $5.68 a share.

— Jo Maitland, Senior Editor, Boardwatch

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ironman 12/5/2012 | 2:44:44 AM
re: Nortel Soars on Verizon VOIP Deal The really BIG message isn't vendor positioning here - its VOIP technology... Not that I'm advocating NorTel's VOIP, but what I'm saying is VOIP technology in general. VOIP is starting to be the next enabler... Should be interesting in 3-4 yrs looking at the network's switching and access networks..
Inaxs 12/5/2012 | 2:44:43 AM
re: Nortel Soars on Verizon VOIP Deal Verizon and basically all other landline service providers basically have to move to VoIP based on softswitching technologies at some point, and sooner seems definitely better than later.

While Nortel's Softswitch, Media Gateways, Application Servers, Media Servers, Signalling Servers, etc., may not be all that Nortel claims they are, at least Nortel has remained committed to softswitching technology. The same cannot be said for Lucent.

So with some of the "sour grapes" postings that look suspiciously like they came from someone at Lucent saying how Nortel won't come away with any margins in this deal, all I can say is "just wait and see". I don't work for Nortel or Lucent but being the voice technology vendor of the future for the U.S.'s largest RBOC (unless and until they screw it up somehow) is certainly where either a Lucent or a Nortel wants to be.

VZ isn't going to screw their most strategic voice vendor supplier for the future price-wise to the point that the vendor risks going out-of-business as some people might like to think. There will be lots of follow-on business (just think of the OSS related training for one, not to mention the new generation of VoIP-related SW upgrades) that will generate significant and ongoing revenue streams for whoever is VZ's main voice equipment supplier.

Nortel is there due to their commitment to VoIP while Lucent is in the embarrasing postion of having to say "wait, me too!".

lastmile 12/5/2012 | 2:44:42 AM
re: Nortel Soars on Verizon VOIP Deal "VOIP is starting to be the next enabler... "

I agree period. When I started talking about VOIP I did so because I was amazed at the sound quality that has changed so much since the time I gave it a try in 1996. Vonage at my friends house works great. Skype in my house works great. Unfortunately I still have a POTS line because I love the old times and the inertia of giving up a hundred year old technology needs courage.

Soon all this will change and VOIP will replace circuit switched networks completely.

Technonerd will however disagree.

BusinessWeek on line has very good information.

They insist that VOIP will upset the telecom power structure.

BobbyMax 12/5/2012 | 2:44:39 AM
re: Nortel Soars on Verizon VOIP Deal It is good news that Nortel got the contract. Verizon is such a strange compay that it could have gone with small inexperienced vendors.

It is not a good strayegy for Verizon to replace all of its #5ESS switches. The software switches and VOIP infrastructure is sill that robust and strong to provide commercialvoice services.

Lucent has not produced any product in the last two and helf years. About 30% of its workforce is still from Third World Countries. Bonuses are still in place for the top management. It is the time for the company to quit.
WiserNow 12/5/2012 | 2:44:37 AM
re: Nortel Soars on Verizon VOIP Deal
Nortel may not be the ultimate solution, but Lucent is offering to repackage Juniper or Cisco media gateways for use with their Softswitch. Talk about a management nightmare!

Or you can use Lucent's Packet enabled 5ESS with a rack of vocoder DSP's hung off the side. Management would be easier but that doesn't get you out from under the ancient technology.
optical_man 12/5/2012 | 2:44:37 AM
re: Nortel Soars on Verizon VOIP Deal BobbyMax.
Lucent no has produced good product two years lsst bycause imployees such as you self skpend to much time on liggtreading and not enough time in labx writing code.
technonerd 12/5/2012 | 2:44:35 AM
re: Nortel Soars on Verizon VOIP Deal Soon all this will change and VOIP will replace circuit switched networks completely. Technonerd will however disagree.
Step right up!
technonerd 12/5/2012 | 2:44:35 AM
re: Nortel Soars on Verizon VOIP Deal VOIP is starting to be the next enabler
Yes, VoIP will be the next enabler of fraudulent IPOs.
mr zippy 12/5/2012 | 2:44:34 AM
re: Nortel Soars on Verizon VOIP Deal The following article from Clay Shirky suggests that the customer may be the competitive threat to telco VoIP services, due to the commoditisation of the technology.

Customer-owned Networks: ZapMail and the Telecommunications Industry


More broadly, the ability for customers to "provision" their own services is due to the IP / Internet architecture, were the service or application plane sits on top of the network, and is implemented at the very edges, rather than "in" or inside the network, as in the traditional voice network.

This traditional "services-in-the-network" thinking is still very common. Geoff Bennett's recent Heaving Reading report, titled "Controlling P2P Traffic" report suggests that IP is not making money for service providers (is this really the case?), and p2p is a major cause. The report suggests that using p2p management technologies from companies such as Ellacoya will allow the service providers to offer different application based service or product classes, based on application use.

Of course, techniques such as p2p TCP port hopping, and ultimately, end-to-end encryption, will put an end to any device in the network identifying, and being able to control traffic based on the application being used. Bare in mind that IPsec is a manditory component of any device claiming compliance with the IPv6 specifications.

The obvious model for service providers is to just provide the basic network communications service. Any additional services they want to provide should be over the top of the network, rather than within it. Traditional service providers may struggle with this idea though, as adding services within the network is what they've always done.

Examples of service provider type companies that are providing services on top of the network are companies like Packet8, whose VoIP services are available irrespective of whose IP network you are attached to, as long as you have enough bandwidth to support the VoIP service.
PO 12/5/2012 | 2:44:33 AM
re: Nortel Soars on Verizon VOIP Deal "... the inertia of giving up a hundred year old technology needs courage."

Hmm. How very true. It's been said that Newbridge (i.e. prior to the Alcatel acquisition) would introduce their new technology, and then tell their customers that they can think of it as just the old technology repackaged. Great marketing technique.

I think we'll see the same with VoIP: despite all the talk of how much different it will be, the actual rollout will feel more familiar.

Just as we think of our modern, digitally switched, SONET trunk environment as "100-year old technology", we'll come to see VoIP as another step along a long path.
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