September 3, 2003 11:54 AM PDT

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Verizon Wireless is buying cellular networking equipment worth $1 billion from Nortel Networks, a sign that things could be looking up for phone gear makers.

Verizon, the biggest U.S. cell phone carrier, said Wednesday that it is investing in two types of CDMA (Code Division Multiple Access) networking gear to boost capacity in five major markets and to prepare for the launch of a new, next-generation wireless broadband network in San Diego.

The deal, Nortel's first announced billion-dollar contract in two years, is a signal that spending on telephone network equipment may be on the rise. This would be welcome news for an industry that's been particularly battered by nearly three years of economic gloom.

But Bruce Gustafson, director of market relations for wireless at the Canadian telecommunications hardware maker, stopped short of saying the downturn might be over.

"Within the wireless group at Nortel, we're pleased with the momentum we're seeing and the contracts we're announcing," he said.

In Wednesday's deal, Verizon agreed to purchase two different types of cell phone networking equipment. One set is powered by a technology called CDMA2000 1XRTT, which is at the heart of an almost-completed network overhaul undertaken by Verizon. The order also includes a new technology called CDMA20001x EV-DO, which the carrier is considering for future use, according to Verizon spokeswoman Andrea Linskey.

The CDMA20001x EV-DO gear will be used to prepare a next-generation network in San Diego for its fall commercial debut, Linskey said. If the equipment works out, the Nortel deal could be just the beginning of a new spending round, she said.

"This is a commercial launch, and we're using it as a proving ground for further capital expenditure," she said.

The technology in the San Diego network would provide wireless broadband downloads of 700kbps (kilobits per second)--about 10 times faster than those available through Verizon's current network. The carrier plans to launch a similar next-generation commercial service in Washington, D.C., according to Linskey.

Wednesday's deal also includes enough CDMA2000 1XRTT equipment for Verizon to expand into Myrtle Beach, South Carolina. The balance will be used to increase calling capacity for its customers in Atlanta, Detroit, Las Vegas, San Diego and Cleveland.

In another good sign for the networking industry, Cisco Systems CEO John Chambers disclosed Wednesday at a SG Cowen technology conference that the company's orders, which in general include telephone network equipment, were better than expected, so far this quarter.

But Chambers also warned that a few good weeks shouldn't be taken out of context.

"We all got kind of excited last May, June, July, when a lot of indicators turned up," he told conference attendees. "But it started to go in August, September."


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