Telecom New Zealand is on the verge of signing a contract worth up to $NZ40 million ($33.7 million) for network equipment which will radically change the way it connects to business customers.

The Universal Customer Access Node (UCAN) project involves installing an ATM switch in customer premises for the provision of all Telecom services, be they voice or data.

It's a first step toward being able to provide converged voice and data services, but Telecom's Future Technologies Manager Graeme Rowe plays down its significance.

"It is just a delivery mechanism for services," says Rowe. "All it is trying to do is make the provision of services over fibre a hell of a lot easier than it is right now. Behind that, of course, is that it is yet another way we can reduce costs and, ultimately, price."

But Rowe says it doesn't mean convergence is around the corner. "UCAN itself doesn't actually facilitate that. That has more to with the architecture of the network itself. To a degree the access device has a role in that but it doesn't define the converged services."

Rowe isn't saying whether Telecom has settled on equipment providers but Alcatel SA and 3Com, through distributor Interconnect, are believed to be expecting the business to come their way. However, neither Alcatel New Zealand general manager Tone Borren nor Interconnect's Southern Region Manager Kenny Soutar are commenting on the deal which is tipped to be worth as much as $NZ40 million over the course of its duration.

If Alcatel gets the nod, it will provide switches from Xylan, the US company which it is in the process of buying. Xylan's local head, Robin Hagen, describes Telecom's moves as a major change in the way it delivers services. Meanwhile, Santa Clara-based 3Com's chief technologist John Hart met Telecom executives during a visit to the country last week. Hart says Telecom appears to have "a fairly clear vision" of what it is trying to achieve.

3Com New Zealand head Ian Gardner says there's significant business at stake in the deal, but he wouldn't specify how much. "But it's more complicated than just the CPE (customer premises equipment); there's a range of services that have to be created."

Rowe won't say what the contract is worth nor when it will be signed. "From a deployment perspective, we've picked some products; the next step is getting the damned thing working within the network and with the billing process. We won't be able to sign committed forecast contracts until we have a very clear picture of the (system's) capabilities and limitations," he said.

"The concept behind it is that we're extending the ATM infrastructure out to customer premises and over that infrastructure we'll deliver multiple services. But they're the services we have today -- things like frame relay and potentially ISDN.

"It will provide definite benefits in terms of being able to use our fibre architecture economically. Provisioning of, say, another 2Mbit/sec stream should take merely a few minutes in front of a console as opposed to sending out guys with trucks and screw drivers. So there are some benefits in that.

"But the service benefits -- next-generation, convergence stuff -- requires some fundamental changes in our network architecture and that involves big investment and hard decisions and almost cutting-edge technology," he said.