Qwest's Upgrade Journey Buoys Lucent

The VoIP gala has been fashionable indeed this year. Given the dramatically lower operating costs of VoIP gear and the pricing advantages over conventional phone service, investors have been rushing to equipment makers like Sonus (SONS), which specializes in softswitch gear.

Sonus shares have more than quadrupled as investment momentum got behind VoIP. Notably, Sonus was down 4% to $8.61 in midday trading as Wall Street mulled Lucent's return to the playing field. Lucent rose 1% to $3.07, and Qwest added 7% to $3.63.

Like so many developments in telecom, though, the VoIP push hasn't been entirely organic. The movement grew in part out of Washington's regulatory framework, which holds that phone service over the Net isn't subject to the same rules as conventional phone service. That means VoIP service is subject to no taxes, no mandatory contributions to universal service funds, no line charges -- the sort of fees that represent about 25% of a total monthly phone bill.

This loophole was preserved in recent federal price rulings. To some investors, that development spelled a great opportunity for IP networking gearmakers to sell to Bells like Verizon (VZ), SBC (SBC) and BellSouth (BLS). Thus the rise of Sonus.

Now, by buying gear that will allow it to use the Net, Qwest intends to demonstrate that it too can play the avoid-regulations-and-tariffs game.

The scale is small, for now. The local phone giant is initially targeting a "select group of customers in Minnesota" for its service. All things told, the Lucent project will take something on the order of three years.

But then, that's where all the big telcos are headed. And as Legg Mason's Bechter points out, now it's up to Lucent to prove its new switch is more than "just a press release."

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