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Telecom Recovery Hopes Raised By Verizon Moves

Critical infrastructure upgrades by two Verizon business operations set the stage for a telecom stock rally that had financial analysts yearning for similar news from other carriers.

Verizon Communications Inc. and its joint venture with Vodafone, Verizon Wireless, announced wholesale network conversions to a unified infrastructure based on the Internet Protocol. Verizon Wireless anticipates spending at least $1 billion on its upgrades but has not yet signed up suppliers. Verizon Communications has not put a dollar figure on the wireline deal it made with Nortel Networks Inc.

While the two upgrade programs have no direct ties to each other, according to a Verizon Wireless spokesman, the combination points to a mass migration to all-IP networks going forward. Indeed, Wall Street is hoping that the phasing out of circuit-switched services finally has begun, with voice-over-IP (VoIP) applications leading the way out of an unprecedented three-year telecommunications slump.

"On the macro level, it does seem to mark a return to capital expenditure, something we haven't seen much of for three years," said Michael Doherty, vice president of telecom practice at analyst firm Ovum (Boston), "and that's positive for the industry as a whole."

"It's a sign that we've reached the bottom and may be heading upward," said Lynda Starr, vice president for U.S. carrier research at Probe Group LLC (Cedar Knolls, N.J.). "But there are still many [macro] economic factors that stand in the way of saying it's a full telecom rebound. I've [seen] nothing to indicate a surge in activity over previous months."

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