Verizon’s Challenges

I once worked at NYNEX, a Baby Bell, which evolved into Verizon, “which dominates the Northeast with 35 million local phone customers, $68 billion in annual sales and a market capitalization of nearly $100 billion.” So, reading about what’s happening in the US telecom industry is quite fascinating as competition comes in from multiple sides. WSJ writes about how cable and Internet players are targeting Verizon’s customers, and what Verizon is doing:

The rapid spread of new technologies is upending the Bells’ dominion. Increasingly, the telecom market is turning into a Hobbesian war of all against all as every company tries to offer every type of service across the country. The Bells are even beginning to steal one another’s local customers, after two decades of generally respecting regional boundaries.

That’s why New York-based Verizon is going after the business of law firms in Los Angeles, and San Antonio-based SBC Communications Inc. is dusting off a switching hub in Manhattan to serve Wall Street financial firms and other companies. At home, consumers are likely to hear pitches from cable-television companies, Internet telephone companies, long-distance providers and any other business that thinks it can grab a piece of the Bells’ pie.

This week, cable giant Comcast Corp. said it plans to make phone service available to 40 million households in the U.S. by 2006 — a direct challenge to the Bells. Comcast’s service will use Internet technology to deliver the calls instead of the traditional circuit switches favored by the Bells.

Verizon has cut more than 21,000 jobs through buyouts since December and is racing to automate processes that used to require fax machines and thick binders of documents. Verizon sold thousands of phone lines in Hawaii for $1.65 billion and has put others in upstate New York up for sale in an effort to cut its $44.5 billion debt and invest in new technologies. It’s also phasing out free weather-information lines and selling real estate vacated by laid-off employees.

“What’s happening right now at Verizon is a total change that is bigger than all prior changes of the Bells’ past combined,” Paul Lacouture, the company’s president of network services, told workers [recently].

This month, Verizon also announced a multibillion-dollar plan to bring high-speed fiber lines into millions of customers’ homes. The lines could eventually carry TV programs, turning Verizon into a direct competitor of cable companies such as Comcast.

Verizon is also going after business customers. Traditionally, they gravitated to long-distance companies such as AT&T or Sprint Corp., which have nationwide networks of optical fiber to carry calls. Now Verizon is telling those customers that it, too, is a national player.

Verizon has put 300 miles of fiber in the ground in Los Angeles, Seattle and Dallas, reaching into the territories of SBC and Qwest. It has built a national network that can accommodate the huge amounts of data that corporations send between points of their empires.

The new investments are beginning to pay off. In the past 18 months, Verizon has persuaded hundreds of corporate customers who previously used only its local service to sign up for Verizon services in other Bells’ territories. The new services bring in $250 million a year, and Verizon hopes that will rise to $1 billion a year by 2007.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.