C&W in Nortel internet deal

The UK's Cable and Wireless has signed a £950m deal with Nortel Networks to deliver voice services over the internet.

The deal is expected to cut the cost of phone calls for business customers.

Under the terms of the agreement, Nortel will change the Cable & Wireless global network to an internet technology which carries telecoms traffic at a quarter of the cost of conventional methods.

This technology breaks down sound into data, which can be transmitted over the internet, allowing customers to bypass charges of long-distance phone companies.

At this stage, it is primarily used by business as it is thought to be too expensive to convert residential lines to voice-over-internet technology.

Industry change

"Potentially this technology could change the way the (telecommunications) industry works," James Harper, an analyst at Schroders Salomon Smith Barney, said.

"But investors are now cautious because there are so many large investments taking place and the returns are not yet coming in."

It is the one of the biggest investments by any company thus far in this technology, but Nortel is confident that more companies will follow suit.

Nortel's chief operating officer Clarance Chandran has said he expects telecoms companies to spend $15bn moving to voice-over-internet networks during the next four years.

The move also reaffirms that corporate internet business is at the centre at Cable & Wireless's business.

Earlier this year, it sold its UK consumer cable business to NTL.