Nortel Networks’ big sale of IP networking equipment to U.S. carrier Verizon Communications 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 network gear to a packet-switched environment, which should spell increased network efficiency and novel apps 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 voice-over-IP (VoIP) 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, 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, Ont.-based 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.

The Verizon announcement comes more than a year after Nortel said it would change its corporate structure and create an enterprise division, in an attempt to give corporate clients the same level of attention that carriers receive from the vendor. That said, Nortel’s most recent wins were with carriers; none was with a big corporation.

Does this suggest that despite its best efforts, Nortel is destined to remain primarily a carrier equipment vendor? Not at all. Gruia pointed out that the enterprise division accounts for approximately 20 per cent of Nortel’s sales.

Besides, carriers seem to be in an IP-happy mood these days. Bell Canada is trialling some Nortel IP equipment and Telus Corp. has cranked up a hosted IP voice-data service for businesses. All of the commotion on that side of the vendor’s business “doesn’t necessarily mean the enterprise side is quiet,” Gruia said.

The Verizon deal includes increased support for the carrier’s enterprise sales force, bent as it is on getting businesses to make the switch from traditional PBXs to IP exchanges. According to a statement from the service provider, Verizon’s enterprise clients have a grand total of 13,000 Nortel Meridian PBX systems and 150,000 Nortel Norstar key systems ripe for upgrading.

Thomas said Nortel is no slouch in the enterprise space, although it is playing catch-up to a competitor that, ironically, is playing catch-up to Nortel in the wireless space: Cisco Systems Inc.

“Cisco is very deeply embedded in the enterprise,” she said. “Nortel’s made headway in the wireless side. Cisco isn’t there at all.”

In other news, Nortel announced a partnership Wednesday with Avici Systems Inc., a North Billerica, Mass.-based IP router maker, whereby Nortel will sell and support Avici’s carrier-class devices. Nortel also gets a chance to purchase part of Avici if the Brampton, Ont.-based box builder meets certain performance requirements, according to a Jan. 8 statement.

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