Verizon has selected Nortel as its exclusive supplier of voice-over-IP equipment for the near-term.

Nortel and Verizon have reached an interim letter of agreement (LOA) covering the initial terms of the arrangement.  They expect to replace this LOA with a five-year agreement within the next few months but Nortel's exclusivity, for now, only extends 18 months.

"I think in a technology that's moving this fast, 18 months is about the limit of our comfort," says Mark Wegleitner, Verizon senior vice president of technology and CTO. "We want to open our options again after that window. That doesn't mean we will; that doesn't mean we won't. It's the kind of timeframe we can be comfortable with."

Despite Verizon's hesitation, analysts say the deployment is a big feather for Nortel even though financial terms were not disclosed.

"Nortel has captured a handful of important VoIP contracts including with Sprint, MCI, Verizon and Bell Canada," states Nikos Theodosopoulos, an analyst at UBS Warburg. "Although timing is more difficult to predict, we expect to see further VoIP wins for Nortel with major telcos."

UBS Warburg also now expects Nortel's wireline business to grow 4% vs. prior estimates of a 1% decline in 2004.

Verizon will begin deployment of the new Nortel equipment in its local and long-distance voice wireline networks later this year. Nortel has already begun shipping softswitch equipment for Verizon’s long-distance, tandem, and end-office networks, including Succession Communication Server (CS) 2000 softswitches and local and long-distance access gateways.

Other Nortel equipment expected to be deployed by Verizon includes Passport Packet Voice Gateway, Succession Multiservice Gateway 4000, Succession Media Gateway 9000, and the Multimedia Communication Server 5200.  Verizon also plans to deploy and distribute enterprise IP telephony products from Nortel.

Verizon will begin replacement of an unspecified number of its traditional local switches with Nortel softswitches and VoIP gateways. In addition, Verizon will begin using the Nortel switches to expand the company’s long-distance network.

Nortel will be the exclusive provider of Verizon’s local and long-distance Class 4 tandem and Class 5 local VoIP switches in new offices over the next 18 months. Verizon's current Class 5 switch vendors are Lucent, Nortel and Siemens.