Verizon Communications Inc. Chief Executive Officer Ivan Seidenberg is coming to grips with
what investors say was inevitable. He couldn’t stem the steady
defection of customers from Verizon’s local-telephone business, so
he’s taking on cable-television companies in an attempt to revive
sales with Internet customers.
Investors see the impact of declining sales at Verizon’s
local-phone business, the largest in the U.S., on the bottom line.
Verizon will report tomorrow that first-quarter profit fell to 63
cents a share from 72 cents, excluding investment writedowns, and
revenue was little changed at $16.4 billion, according to analysts
surveyed by Thomson Financial.
Cable operators got a head start that allowed them to capture
two-thirds of the $9.3 billion-a-year U.S. broadband market, which
offers Internet access that is faster than regular phone lines.
Seidenberg needs to catch up, and investors say time is running
short.
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“It’s time for Seidenberg to get serious about broadband,”
said analyst Paul Wright of Loomis Sayles. “He understands that and he’s going to move on it.”
Seidenberg’s plan is to add services that will generate new
customers and sales. He added wireless users at a faster pace than
rivals during the quarter and won U.S. approval to sell long-
distance calling across the region where New York-based Verizon
dominates local service.
Broadband is the focal point of Seidenberg’s strategy. The
shift comes after U.S. regulators decreed two months ago that
Verizon and other Baby Bells no longer have to lease fast Internet
lines to rivals at discount prices.
“It is a turf war,” said Robert Rock, a fixed-income
analyst at John Hancock Advisers Inc., which manages $30 billion
and holds Verizon bonds. “Cable companies are locking in
customers and Verizon can’t afford to wait.”
Selling high-speed Internet access is “a place where we haven’t done as well,” Seidenberg, 56, acknowledged to a roomful
of Silicon Valley entrepreneurs in February. He declined to be
interviewed for this story.
The CEO last month said he will install 10 million more
digital subscriber lines, capable of letting customers surf the
Web at speeds 50 times faster than conventional phone connections.
The increase this year will give Verizon 46 million lines on which
to sell fast access, or 79 percent of its local lines.
At the end of 2002, the company had 1.8 million DSL customers– half the number of high-speed Internet customers at Comcast
Corp., the biggest U.S. cable-television operator.
Verizon probably added 149,000 DSL subscribers in the first quarter, said Ned Zachar, an analyst at Thomas Weisel Partners.
The company charges as much as $49.95 a month for broadband
access, compared with as little as $16.85 for flat-rate local
calling, according to its Web site.
Long Distance, Wireless
The company lost about 675,000 local residential lines in the quarter, according to UBS Warburg analyst John Hodulik. That would
be the eighth quarterly decline in a row as competition has
increased.
At year-end, Verizon had 58 million local-phone lines and
10.4 million subscribers to its long-distance service. It
surpassed Sprint Corp. as the No. 3 U.S. long-distance company,
measured by number of customers.
Verizon Wireless Inc., a venture with Vodafone Group Plc of
the U.K., had 32.5 million subscribers, making it the largest U.S.
mobile-phone company by both customers and sales.
Bloomberg News
