Sycamore Networks

(SCMR)

won a contract to provide

BellSouth

(BLS)

with new-generation optical switches and transport equipment for its planned Internet gateway service center in Florida.

BellSouth and Sycamore didn't disclose the terms of the deal, but observers say its symbolic value far exceeds its dollar value. Sycamore expects to record revenue from this contract in 2001, but declined to specify in which quarter. Fending off a broad-based market selloff, Sycamore shares rose $3.45, or 5%, to $76.14.

Symbolism

For Sycamore, the deal marks the first sale of its advanced fiber-optic switching equipment to a regional Bell. These devices are seen as the replacement for generations of electronic equipment that are buckling under the surging capacity demands of the Internet.

Wooden
Sycamore shares lag behind Ciena

Networks can gain far higher capacities, or bandwidth, by carrying information over light waves rather than using electronic pulses. And optical switching permits more efficient traffic management at a time when phone and data companies are seeking ways to control the onrush of Internet traffic.

Sycamore has been making steady but slow inroads into the market. The Chelmsford, Mass.-based firm has been struggling to expand its customer list beyond its primary client,

Williams Communications

(WCG) - Get Report

.

"We are really excited by what we see as the market's acceptance of this technology as a new way of building networks," says Sycamore's chief of core switching, Jeff Kiel.

Competition

Sycamore,

Ciena

(CIEN) - Get Report

,

Corvis

(CORV) - Get Report

and closely held

Tellium

are among the networking players pushing toward what's known as the holy grail of optical switching. Bigger competitors for the prize include

Nortel

(NT)

,

Lucent

TST Recommends

(LU)

and

Cisco

(CSCO) - Get Report

.

Sycamore, along with rivals Ciena and Tellium, is in hot pursuit of a switching contract with

AT&T

(T) - Get Report

.

Tellium, as

TheStreet.com

reported in August, has plans to make an initial public offering by year-end, and has hit the optical market with a bang. The Oceanport, N.J.-based company has secured contracts for its optical switch from two big players -- Qwest and

Cable & Wireless

-- in recent months.

Meanwhile, Ciena has been

racking up several new customers for its Coredirector switches.

"Ciena, by far, has the lead," says

Chase H&Q

analyst Jeffrey Lipton, who has no rating on Sycamore and a buy on Ciena. "They have the most customer traction, their product is further ahead and the have probably the leading architecture," says Lipton, whose firm hasn't underwritten for Sycamore or Ciena.

Going Live

BellSouth plans to have the optical gear in place and carrying live traffic by the end of the year. Its shares slid $1.31, or 3.2%, to $40.25.

BellSouth will use the gear in a new network access point, or junction station, in South Florida to merge undersea cable routes from South America and Africa with land-based Internet backbone systems operated by companies including

Worldcom's

(WCOM)

UUNet

and

Qwest

(Q)

.