from peterk(Moderated)
Verizon Picks Nortel for Five-Year US$2-bil. CDMA Contract
Verizon builds on existing agreements with Nortel to deliver CDMA networks with an expected new equipment and services contract.
Global Insight Perspective
Significance
Nortel is awarded a US$2-billion five-year CDMA equipment and services contract with existing customer Verizon Wireless.
Implications
Nortel has maintained and built on a contract with an existing revenue source that will help it to meet plans to achieve financial stability.
Outlook
The level of investment in CDMA networks by Verizon with Nortel has marginally increased, but it is not yet clear what Verizon's plans for the US$2.8-billion AWS spectrum acquisition are.
Nortel has announced that it has won a contract from Verizon Wireless for equipment and services valued at US$2 billion, upgrading and expanding the Verizon Wireless network. The contract runs for a five-year period and covers installation of CDMA 2000 base stations, switching, IP platforms, optical networking, related equipment, and professional services. The agreement builds on a July 2006 deal to supply Revision-A technologies. The announcement of the agreement also re-iterated the co-operation between the two companies in developing and deploying IP Multimedia Subsystems (IMS)-based applications and services (see United States: 28 July 2006: Verizon Wireless in IMS Initiative).
Outlook and Implications
Effect on Nortel: The contract is a significant win for Nortel, which has been struggling in recent years and selling assets including its loss-making UMTS unit to Lucent-Alcatel (see World: 5 December 2006: Alcatel and Lucent Finalise Merger; Nortel UMTS Arm Deal Closes, World: 23 November 2006: Nortel Outlines Recovery Plan, and World – Canada: 8 November 2006: Nortel Losses Narrow on Revenues Up 17%). However, Nortel already had a long-term contract with Verizon to expand and upgrade the CDMA network and this deal was expected. Running at US$400 million per year, it is close to Verizon's existing expenditure with Nortel, and while this win is likely to be vital to maintain the company's financial health it is not a new contract that would allow it to tap a new source of revenue (see United States: 4 September 2003: Nortel Wins US$1bn Contract from Verizon Wireless).
Verizon: Verizon Wireless has framed the deal as a continuation of improvements and expansion to the network. Verizon Wireless was the second-largest bidder in the latest AWS spectrum auction, paying US$2.8 billion for licences covering a population of 192 million (see United States: 19 September 2006: FCC AWS Auction Ends at US$13.9 bil.). This announcement provides a slight indication that the company is not just planning on spectrum hogging, as some industry watchers suspect, and does intend to expand coverage through continued investment and expansion of Verizon's network. This could include areas covered by these licences, but this will remain to be confirmed.
Mass Market Data: Following deals with user-generated video companies to deliver services to mobile users, the expansion of 3G video service areas is likely to be a significant component of strategy to maximise the revenue benefits that these services, popular with maturing youth mass market consumers, are expected to bring (see: (see United States: 28 November 2006: Verizon Wireless to Offer YouTube Videos and United States: 29 November 2006: Verizon Wireless Doubles Up on Video with Revver). A number of additional content deals have also been announced in North America that are indicative of a growing move to move data usage into the mass market (see United States: 17 November 2006: North American Wireless Services Move Forward). Although data usage has been growing and data revenues grew 69% year-on-year to an ARPU of US$7.16 or 14.1% of ARPU, this is still amalgamated with messaging revenues. Messaging is more rapidly accelerating as the United States' SMS system, which was notoriously late to market on interoperability and still suffers from image problems as an unreliable communications medium begins to stabilise and grows rapidly (see United States: 30 October 2006: Verizon Messaging Grows 150% Y/Y and NAFTA: 24 January 2003: SMS Interoperability Launched Between US and Canada). The economics that will dictate if high-speed networks move beyond more-densely populated key urban markets in the near future is still debatable and the exact nature (CDMA 2000 1x or Revision-A ) of the network deployments will remain to be seen, although Verizon notes that it has selected technologies based on easy upgrade paths which is indicative of measured expansion of EV-DO Revision-A.
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