Telecommunications equipment makers Lucent Technologies Inc. and Nortel Networks Corp. on Monday announced deals worth $692 million to provide Verizon Wireless with equipment to support its new high-speed wireless Internet service.
Verizon Wireless said Lucent's three-year deal will be worth more than $525 million in the first two years, while Nortel's two-year agreement will be worth $167 million.
"Some investors might have been speculating that Lucent has lost some of its market share within the Verizon Wireless account, but today's contract awards should put that speculation to rest," Lehman Brothers analyst Steve Levy wrote in a research note.
He added that the contract does not include a renewal of the basic supply agreement between Verizon Wireless and Lucent, something he believes should be signed by the end of this month and be worth billions of dollars over three years.
Monday's agreements are part of a plan that Verizon Wireless announced in January to spend $1 billion on upgrading its networks over the next two years, including building a high-speed wireless Internet data network that will be available in major U.S. cities this year.
Verizon Wireless is owned by Verizon Communications and Vodafone Group Plc.
The network, which will use third-generation or "3G" technology, will be fast enough to allow consumers to download video and music as well as send video messages. The United States trails Asia and Europe in 3G deployment, but U.S. carriers did not take on heavy debt to deploy 3G as their European peers did.
Lucent officials said Verizon Wireless' new network will pressure other wireless carriers to boost spending on their high-speed wireless networks.
"An operator can't afford to wait now. You can't be third or fourth to get out there in the market," John Marinho, a vice president in Lucent's wireless business, said at the U.S. wireless industry's major trade show in Atlanta.
He said Lucent is talking with other wireless carriers regarding high-speed products, including AT&T Wireless Services Inc.
The average revenue per high-speed wireless Internet customer is $40 per month, and that is on top of what they already spend on wireless, Marinho said. Lucent expects eventually about a quarter of traffic on wireless networks will come from high-speed data based on the industry's experience in South Korea, he added.
Lucent said its deal with Verizon Wireless is "supplemental" to its existing supply agreements with the largest U.S. wireless operator. Under the new deal, Lucent will upgrade its existing base stations with Verizon Wireless, as well as provide other equipment and services.
Nortel will upgrade Verizon Wireless' existing base stations and provide new base stations, modules and other services.
Bear Stearns analyst Wojtek Uzdelewicz said Lucent picked up business with Verizon Wireless at the expense of the Motorola Inc. He estimated Motorola traditionally supplied 15 percent of Verizon Wireless' wireless equipment for its CDMA network, compared with Lucent's 60 percent and Nortel's 25 percent.
He said Motorola did not participate in Verizon Wireless' high-speed Internet service trials last year and will not have a meaningful role in the roll-out of that technology. "This could lead to further erosion of Motorola's presence at Verizon," Uzdelewicz said in a research report.
