Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ) may cancel a $20 million follow-on four-year contract with Nortel Israel Ltd. for supporting PSTN telephony switchboards. Bezeq is considering taking over the support itself. For Bezeq, the move goes beyond a cost-saving measure and hints at its plans for switching to next-generation networks (NGN).
Nortel Israel has supported Bezeq's 140 telephony switchboards for years, proving technical services, repairs, and supplying hardware. Its contract is up for renewal in 2008, but Bezeq is conducting a "review" on the issue, apparently because of the cost. The company is expected to recommend to the board not to renew Nortel's contract.
For Nortel Israel, loss of the Bezeq contract means more than loss of Israel's primary telephony company as a customer. The company supplies a large part of the enterprise communications systems sold in Israel, and it is also setting up the EVDO cellular network for Pele-Phone Communications Ltd. and the UMTS network for Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR; LSE:PCCD).
Nortel Israel and Eastern Europe president Sorin Lupu once said that 10-15% of the company's revenue in Israel, which totaled NIS 500 million in 2005, came from wireline telephony products, i.e. from Bezeq and Hot Cable Systems Media Ltd. (TASE: HOT).
Bezeq has long been planning to upgrade its telephony to NGN in order to provide advanced low-cost IP voice, video, and data services. A year ago, former Bezeq CEO Yacov Gelbard said that the company was considering investing $500 million in NGN. Although the company published a tender, which was won by Alcatel Lucent (NYSE: ALA; Euronext: ALU), but nothing has happened yet
Nortel Israel said in response, "The company does not discuss customer relations in the media."
Bezeq said, "The warranty contract with Nortel for the maintenance of switchboard equipment is due to expire in a few days. The company is considering extending the contract."
Published by Globes [online], Israel business news - www.globes-online.com - on December 19, 2007
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