Nortel's VoIP Money Call

It looks like Nortel (NYSE: NT  ) is a born-again growth company, thanks to a new deal with Verizon (NYSE: VZ  ) . The deal expands the use of Nortel's voice-over-Internet-protocol (VoIP) technology, with Verizon upgrading its older switches.

VoIP allows for voice communications over the Internet, and is finally hitting critical mass. But the technology needed a big time player to really commit before it truly became the "next big thing." Verizon, the No.1 U.S. phone company, helps the cause and also provides a boon for Nortel. Under the deal, Nortel will be the exclusive supplier of softswitches in this move towards VoIP.

For Verizon, VoIP should reduce expenses, as well as allow for more premium services, such as instant video calling, sharing of electronic documents, unified messaging, and so on.

For Nortel, the deal could be worth up to $400 million. This is no fluke, either. Nortel has VoIP deals with such heavies as Sprint (NYSE: FON  ) and MCI.

After the telecom depression, executives have become much more sober. However, in the deal's announcement, Nortel's president declared that: "We are on the edge of a new era in telecommunications."

So, it appears 2004 will be the year of VoIP. And, yes, there has already been a surge in the small-cap VoIP stocks, such as Z-Tel Technologies (Nasdaq: ZTEL  ) , deltathree (Nasdaq: DDDC  ) , VocalTec Communications (Nasdaq: VOCL  ) , and 8x8 (Nasdaq: EGHT  ) .

But, there seems little doubt that it is the big players, such as Nortel, that will get the top-tier deals -- and Verizon is as big as they get.

Think Verizon's new deal in VoIP is going to be the next big thing, or the next big bust? Hash out the prospects with other Fools on the Verizon discussion board. Only on Fool.com.Tom Taulli is the author of six books on investing, such as Investing in IPOs (Bloomberg Press). You can reach him at tom@taulli.com.


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