Lucent gets $1.5 billion deal: Verizon flexes its muscles

Verizon Wireless showed its might as the largest nationwide wireless operator by signing a letter of intent last week with Lucent Technologies for a contract estimated at $1.5 billion.

"It's primarily aimed at taking Verizon to 3G," said Bill Rohrbach, regional vice president of the Americas for Lucent's wireless networks group.

Lucent is in the process of implementing a trial third generation network in Philadelphia for Verizon, following recent lab tests where the vendor demonstrated 3G data services. In addition to 3G equipment, Lucent will expand capacity and coverage for Verizon and offer intelligent network and unified messaging solutions.

The deal, while massive in size, didn't shock many industry observers. Lucent has played a key role with each of the operators that comprise Verizon. Lucent was the sole infrastructure provider for PrimeCo and the primary vendor for Bell Atlantic Mobile. In addition, Lucent is a principal supplier for GTE Wireless, which will be part of Verizon if its merger with Bell Atlantic is approved.

Despite Lucent's role as lead vendor, Verizon likely will ultimately employ a multivendor strategy. "Most carriers want to hedge their bets," said Tole Hart, senior analyst for Dataquest.

While the sizeable contract is an important win for Lucent, it also reflects on Lucent's competitors. Nortel Networks has been strong in Europe and the Americas.

"By contrast, Lucent has not been so active in Europe or Asia, both of which have seen dramatic acceleration," said Tim Luke, an analyst with Lehman Brothers. "So one can conclude that the focus of Lucent has been to drive their position in North America, particularly in CDMA markets."

Motorola, which has been traditionally strong in Asia, meanwhile is facing challenges to its infrastructure business worldwide and wants to revitalize the business, Luke said.

Verizon's size could be a blessing and a curse. Large companies often move more slowly, but they can leverage their size. "With a handful of vendors trying to supply the world with infrastructure, it's important to be at the head of the line when it comes to next generation services," said Larry Swasey, vice president of communications research for Allied Business Intelligence.

- May 2000: Ericsson wins $2.24 billion deal with Vodafone AirTouch

- May 2000: Nortel wins $700 million contract with BT

- May 2000: Alcatel and Fujitsu sign deal to jointly develop 3G equipment

- June 2000: Lucent wins $1.5 billion deal with Verizon Wireless, the largest U.S. 3G contract to date