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Sonus Wins at Japan Telecom

Date: 12/20/2007 1:02:49 AM

Analysts say Sonus Networks Inc. (Nasdaq: SONS message board)s most recent deal with Softbank subsidiary Japan Telecom Co. Ltd. could net the vendor as much as $10 million in revenues over the next several months.

The deal, announced Tuesday, specifies that Sonus will provide the VOIP equipment that will power Japan Telecoms new voiceoverbroadband service. (See Japan Telecom Picks Sonus.)

The carrier and the vendor have, over the past year, built a VOIP service capable of handlng a million Japanese subscribers over broadband connections.

Analysts say the deal could mean an initial chunk of revenue amounting to between $6 million and $7 million for Sonus. That figure is based on the number of ports typically enabled by carriers in advance of the launch of new VOIP service. (See Sonus: Were Big in Japan.)

Sonus will likely recognize revenue from the deal this quarter, U.S. Bancorp Piper Jaffray analyst Troy Jensen says, due to the companys strict profit recognition rules. (See C&W Splits, Ditches CEO.)

Equipment revenue generated from the deal in subsequent quarters will depend much on the appeal of the new VOIP service, Jensen says. “I would say it’s probably not a huge contract probably $10 million at most, depending on the success rate and the subscriber count."

The real value of the Japan Telecom deal may materialize later on. “The opportunity is that once you’re in you become the incumbent, and then you leverage that into Class 4 and Class 5 replacement.” Replacement of those legacy switches would yield far more revenue for Sonus than the current contract.

“It’s the footprint in a leading telecom company over in Japan that could be meaningful down the road,” Jensen says.

Sonus is set to announce its fourthquarter 2005 earnings on March 13, the day before the start of the Voice On the Net (VON) Coalition conference the VOIP crowds biggest shindig.

Sonus says it is providing Japan Telecom with its GSX9000 softswitch, signaling gateways and VOIP system management software. But a Sonus spokeswoman refused to comment on the revenue implications of the Japan Telecom deal.

Investors have so far taken little notice of the deal. Sonus shares barely moved on the news. The stock closed up $0.02 (0.41%) to $4.85 in regular trading on Tuesday.

Japan Telecom is a wholly owned subsidiary of Softbank, a larger Japanese operator where Sonus has maintained incumbency status since 2003.

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