Nortel Strikes First With Verizon Deal

The arrangement was particularly damaging for Lucent given that it was the original supplier of switches to Verizon. But Lucent's efforts on the so-called softswitch have been marred by first by failures, then by a confused strategy and later deep staff cuts.

But as industry observers point out, the shift to VoIP, much like the earlier switch from analog to digital technology, will take a decade at least.

And though Verizon's plans make it seem that Nortel has a pretty good lock on a five-year phase of the project, the exclusive status will last 18 months and be limited to new offices.

"What shocks me," Levy says, "is that more than $2 billion in market value was added to Nortel today. That is a gross overreaction on the positive side."

Stunt Double?

Notably, Verizon doesn't typically disclose contract winners, let alone letters of intent, so to some observers Wednesday's VoIP announcement was a bit of a stunt.

"This is certainly good for Nortel for publicity purposes, but there's nothing there to drive the stock up much," says Sam Greenholtz, an analyst with Telecom Pragmatics.

"I don't think it's crippling for Lucent. They are behind on the softswitch, so this just puts pressure on them to be ready at the end of 18 months," says Greenholtz.

As luck would have it, Lucent sees things just that way. A Lucent spokesman said the company continues to work with Verizon on its VoIP planning, and adds that Lucent will offer a good softswitch solution "as VoIP accelerates."

That in mind, Lucent investors sent the stock up 6% to $3.48, a 52-week high. Lucent shares have jumped 22% in a week as Wall Street bets that the broken gear shop is on the road to recovery.

One mid-Atlantic financial analyst who asked not to be named said Verizon's intended audience was probably the Federal Communications Commission and the investment community. Verizon has taken the lead among the Bells in lobbying regulators to ease rules that give Net-based competitors cost-savings advantages.

A Verizon representative said the company is giving the VoIP plans big play because there is a lot of attention on that part of the industry right now. Asked why Verizon chose an uncharacteristically public endorsement of one vendor, the rep said "we are celebrating" our plans for the future.