From Light Reading on the C&W deal
C&W Bets $1.4 Billion on VOIP
Cable and Wireless (NYSE: CWP) announced today that it will pay Nortel
Networks Corp. (NYSE/Toronto: NT) $1.4 billion to move C&W's circuit-switched
voice network to IP.
The contract is notable in several ways. From a business standpoint, it highlights
a trend among carriers and key networking vendors to support voice-over-IP
(VOIP) technology as a means of unifying voice and data on one network and
building up a roster of services that combine both. On Friday, for instance, Cisco
Systems Inc. (Nasdaq: CSCO) acquired two companies that specialize in this
area (see Cisco Turns Up Voice Signal ).
The deal also gives Nortel a good edge over its competition. The process of
managing C&W's network calls for Nortel to rip and replace existing IP and
time-division multiplexing gear, including products from Ericsson (Nasdaq:
ERICY), Marconi Communications PLC (London: MNI), and Nokia Corp. (NYSE:
NOK). Overall, C&W spokespeople say, Nortel will reassign 80 percent of its
existing network traffic.
C&W stipulates, however, that a range of contracts won't be affected by this
agreement -- in particular, those with Juniper Networks Inc. (Nasdaq: JNPR) and
Tellium Inc. (see Tellium's Big Score ). "This agreement helps us build an
application services and gateway layer," says Mike McTighe, CEO of global
operations at C&W. "We are investing in other vendors such as Juniper at the
core and in the optical infrastructure."
C&W says today's deal will enable the carrier to sell a range of new voice and
data services from a single network, at roughly a quarter of what it would cost to
expand its voice network alone.
Specific terms of the contract, which encompasses C&W's network in the U.S.,
U.K., and Europe, call for Nortel to create a customized integrated voice and data
platform for C&W for approximately $450 million over the next three years. Nortel
will make an additional $1 billion by migrating the carrier's voice circuits onto the
new switches within the same period of time. Nortel will continue to manage
C&W's IP network at specified service levels over the next decade. In addition to
using its own staff, Nortel will be helped by 290 C&W employees, who will move
to Nortel for the project.
"This is very positive for Nortel," says Lawrence Harris, VP at investment bank
Josephthal & Co. "It's also a good move for Cable & Wireless and gives them
significant cost reductions and service leverage."
While Nortel refused to say exactly how the contract will affect its earnings
results, Harris says his firm expects it to be "very positive": "We estimated their
earnings to be 73 cents a share for 2000 and 99 cents for 2001, but now we
believe the company can probably exceed those expectations."
The win also highlights Nortel's role as a provider of services like outsourcing and
software development -- services that up to now haven't been stressed in its
marketing. According to Mike McTighe, Nortel beat its rivals in part because it
was able to demonstrate that it could perform the required services.
The deal will no doubt burn at least some bridges between C&W and other
vendors. That could be a risky strategy in a time when the market for carrier
equipment seems to be in a state of flux and some carriers are struggling to stay
afloat (see ICG's Sinking Ship and Report Downgrades Cisco and Nortel ).
The market seems to be cautious about the impact of the contract on C&W's
future: At midday, the carrier's shares had dropped a fraction of a point to $42.44.
Nortel's stock rose 1.69 points by midday, to trade at $62.06.
-- Mary Jander, senior editor, Light Reading lightreading.com
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