Verizon plans to spend the next five years changing the circuitry inside all 5,000 of its central offices, which can simultaneously connect any number of local phone customers to Verizon's nationwide network. According to a deal announced on Wednesday, Nortel Networks will be Verizon's exclusive supplier of what are known as "soft switches" for the next 18 months.
Soft switches break calls into bits of data using the Internet Protocol (IP), the world's most popular method for electronic devices to communicate. With IP, thousands of data packets are sent over the Internet at the same time using any open pathway they can find. It's much more efficient than the circuit switches Verizon now uses, which waste network capacity by creating a constant connection.
Verizon spokesman Mark Marchand called the effort the "largest ever telecommunications transformation," saying that though others have shown interest in and developed IP-based services, "nobody has moved forward on this scale."
Verizon's competitor Qwest International Communications launched a low-cost IP telephone service in Minnesota, and long-distance provider AT&T intends to use VoIP technology to enter the local telephone service business. Major US cable companies are using it to sell telephone service. Efforts to reach several of Verizon's competitors were unsuccessful on Wednesday.
Verizon began shifting its network toward what's called VoIP (voice over IP) in 1999, when it started using the technology to ferry voice calls and Web traffic many thousands of miles. During the next several years, the company will "push IP right to the home," Marchand said.
Sue Spradley, Nortel's wireline networks president, said that "what Verizon is trying to demonstrate is that voice over IP is ready in a major way to go into the market."
For now, however, Verizon's move to the more efficient IP method is meant mainly to reduce its own operating expenses. But Marchand said the company is working on a number of new customer services that take advantage of the IP transformation, including long-distance and local Internet telephone plans likely cheaper than what Verizon offers now. Other new possible services from Verizon after the IP transformation include cable TV, movies on demand and other "multimedia" services, Marchand said.
The push by carriers to get into VoIP has created a boom for network equipment suppliers. In North America alone, Nortel is supplying the soft switches to Sprint Communications, MCI, Qwest International Communications and cable providers Cox Communications and Charter Communications.
Financial terms of the deal between Nortel and Verizon were not disclosed.
