Nortel bags WorldCom network deal

TORONTO: Nortel Networks Corp. it won a contract to upgrade the network of bankrupt telecommunications WorldCom Inc. The financial terms of the deal were not disclosed. One fund manager said the value of the contract was likely modest, but was nonetheless important because it demonstrated demand from phone companies for the technology.

So-called "packet-based" networks allow voice and data traffic to be broken down into smaller pieces and simultaneously sent across the same path. This is more efficient than older technologies that require each voice call have a dedicated line.

"It is early technology. This is one of the futures of the company... it is not a significant dollar figure, but it is an extremely encouraging sign of good things to come from Nortel," said Duncan Stewart, a partner and portfolio manager with Tera Capital Corp., which holds Nortel shares.

Nortel chief executive Frank Dunn predicted last month that its technology to provide voice calls over packet networks would be a major growth area for the company.

Nortel and WorldCom, which plans to dump its tarnished name and adopt MCI, announced the agreement in Atlanta at Supercomm, the telecom equipment industry's largest conference.

Worldcom, the No. 2 U.S. long-distance telephone and data services company, said the contract is part of a plan to move 100 percent of its voice traffic to an Internet protocol (IP) packet voice network by 2005. By year end, Worldcom plans to have 25 percent of its voice traffic moved to the IP network.

"MCI has selected Nortel for the packetization of their entire long-distance network... that is a network that today serves 20 million customers, so this is an enormously significant announcement," Nortel vice-president of wireline marketing Al Safarikas told Reuters from Atlanta.

The upgrade will see Nortel add soft switches, which are considered the brains of a packet-based network, and gateways, which are the on-ramps and off-ramps, to Worldcom's network.

The companies said work on the network began in January. Worldcom has already deployed 36 gateways and will deploy another 15 by the end of June.

Nortel's stock did not benefit from the news, closing down 8 Canadian cents, or almost 2 percent, at C$4.32 in Toronto with more than 24 million shares traded. In New York, the stock fell 5 cents to $3.15.

The stock has risen 71 percent on the Toronto Stock Exchange this year, outperforming the S&P/TSX information technology index, which is up about 22 percent.

Separately, Desjardins Securities raised its rating on Nortel to "top pick" from "buy" , saying the telecom equipment maker should benefit from rising spending by North American phone companies.

© Reuters