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| [new technologies] 3/8/06 WSJ Article - Verizon Hits Hurdles in Verizon Hits Hurdles in Big Bet On New High-Speed Network
»online.wsj.com/article/SB1141783···106.html
AT&T Uses Cheaper Method,
But Seidenberg Persists,
Seeing Hope in TV, Web
Digging Mr. Clemons's Lawn
By DIONNE SEARCEY
March 8, 2006; Page A1
Two years ago, Verizon Communications Inc. Chief Executive Ivan Seidenberg made a colossal gamble. He put Verizon on course to spend billions of dollars on a new network of fiber-optic cable that would carry television, Internet and voice directly into homes across the country. The goal: dominate the new race among phone, cable and Web companies to supply those digital services bundled into one package.
Now Mr. Seidenberg's plans are running into some hurdles. Beset by the challenges of digging up lawns and wooing local officials, Verizon landed 44 approvals last year to offer television service, slightly more than half the company's target for the year, according to people familiar with the situation. To save time and money, Verizon has scaled back its "fiber to the home" plan to something more modest that doesn't necessarily put fiber in people's living rooms.
AT&T Inc.'s planned $67 billion acquisition of BellSouth Corp., which would make it far bigger than Verizon, is adding new pressure. AT&T is also rolling out Internet and television services but it's using a cheaper method that would bring fiber only as far as neighborhoods. That has freed up resources for AT&T to make three acquisitions to compete better against Verizon in wireless, Internet and business services, as well as powerful cable rivals. While Verizon has made a big acquisition of its own recently -- MCI Inc. -- it has largely been focusing on its costly network upgrades.
Investors have been noticing the difference. Verizon shares are down nearly 17% since the beginning of 2005, despite a recent rally. AT&T shares rose 13% between the beginning of 2005 and the BellSouth announcement, and BellSouth's stock rose nearly 14% during that period.
Mr. Seidenberg won't budge. The fiber rollout continues and Verizon is making sacrifices. Last year it gave no raises to many top executives, according to people familiar with the situation, and bonuses are lower than in previous years. The company says the cuts aren't connected to its fiber plans. It has frozen pensions for managers, rankling many of them. Verizon has said it will shed its directory businesses and its land-line business in certain areas.
The new AT&T would have a market capitalization of some $170 billion, compared with Verizon's roughly $100 billion. Mr. Seidenberg says Verizon is big enough. "We don't necessarily need more [traditional phone] lines -- we need more broadband lines, and the quicker we convert ourselves to broadband, the better we will do," he said yesterday in a speech to employees in Maryland, referring to high-speed Internet connections.
Mr. Seidenberg's argument for why Verizon can win is simple: speed. The fiber-optic lines Verizon is building will eventually carry as much as 100 megabits of data per second, enough to download an entire movie in seconds. That's about 20 times as fast as the typical cable line. The speed will give Verizon the ability to offer services that cable and Internet companies can't match, Mr. Seidenberg believes.
But even as Verizon hopes to snatch business from cable companies, the cable companies are grabbing business from Verizon. In the Northeast, Verizon's home territory, cable giants Comcast Corp., Cablevision Systems Corp. and Time Warner Inc. are enjoying early success in selling phone service over cable lines along with television channels.
Behind the battle is the rise of technology for routing telephone calls, Internet traffic and television programs on the same network. Telecommunications and cable companies are racing to offer all these services in package deals.
The new speedy fiber-optic lines aren't the only area where Mr. Seidenberg is looking for growth. His cellphone business, Verizon Wireless, is the most profitable in the U.S. Subscriptions are growing, and there are fewer customer complaints compared to rivals, Verizon says. Now that prices on traditional local and long-distance telephone calls have fallen so far, cellphone service is a key source of cash to finance Mr. Seidenberg's fiber-optic dreams.
Even wireless is giving him challenges. The most nagging issue: Verizon owns only 55% of Verizon Wireless, with the other 45% belonging to Britain's Vodafone Group PLC. Vodafone executives have been under pressure from investors to sell the stake and return the cash to shareholders in the form of a dividend. However, Vodafone says it's in no hurry to give up the profitable investment.
Mr. Seidenberg said yesterday to employees: "We're going to keep a strong balance sheet, keep our debt down, and eventually we're going to buy the other piece of Verizon Wireless."
AT&T's new deal adds to the pressure on Verizon to take exclusive control of its wireless unit. AT&T currently owns Cingular Wireless in a joint venture with BellSouth. If the two parents become one, Cingular could improve its service and more effectively challenge Verizon Wireless. Already Cingular has more customers.
Verizon Wireless could trump Cingular again by buying another cellphone company -- perhaps Alltel Corp., Little Rock, Ark., which has 10 million customers. Verizon Wireless also is weighing whether to bid on more wireless spectrum. The new spectrum would help Verizon Wireless offer fancier services such as video downloads but would be costly.
Verizon, which has $38 billion in debt, already spent $8.4 billion last year to buy MCI. That helped Verizon stay competitive after SBC Communications announced last year it would acquire AT&T Corp. and grab AT&T's extensive base of business customers. (SBC decided to call the combined company AT&T Inc.)
Verizon became entangled in a time-consuming bidding war for MCI and ended up paying about $2 billion more than its reported initial bid. The deal left Verizon with an amalgamation of technologies that have to be integrated. The company says the integration is going smoothly.
The fiber rollout is consuming a large part of Verizon's resources and attention at the moment -- and it's the area that investors are watching with the most interest.
So far, Verizon has brought fiber to more than three million homes, giving those customers who choose to subscribe access to superfast Internet connections. It expects to add another three million households by the end of this year. Verizon says it has permission from local authorities to offer television service to 1.3 million people. However, only a fraction of those homes subscribe to the service.
Verizon has encountered major hurdles to rolling out television because current laws generally require it to seek permission from every community where it wants to offer service. It has sent an army of lawyers to city halls across the country and spent millions of dollars lobbying states and Congress to change the laws so that local permission wouldn't be needed. The company disputes that it missed its goals for last year and says it is now securing permissions at a steady clip.
Last fall the company started offering television in Keller, Texas, and has since added markets in Florida, Virginia and elsewhere. Also, in a handful of states it has or expects to get blanket permission to sell television service anywhere in the state.
Mr. Seidenberg says the effort is worth it because Verizon will be ready to offer big-capacity Internet applications that are still in their infancy -- such as movie downloads -- or are yet to be imagined. Verizon says the cost of deploying its fiber will fall as it racks up experience. Recently, Verizon's vice chairman, Larry Babbio, told analysts the cost of connecting individual homes with fiber is expected to fall to $890 a home from the $1,400 a home it spent in January 2005.
AT&T is stretching its fiber only to neighborhood equipment centers and using old-fashioned copper to deliver services the rest of the way to customer homes. As a result, its Internet connections will have significantly lower capacity than those of Verizon but AT&T says its bandwidth will be ample for Internet television, video on demand and other capacity-gobbling services. The company's plan is much less costly than Verizon's. AT&T plans to spend roughly $5 billion through 2008 to reach 18 million homes with its fiber project, while Verizon's program eventually could cost as much as $20 billion.
Originally Verizon talked of stringing optical fiber lines -- the same type that form the backbone of the world's telecommunications infrastructure -- directly into the living quarters of homes. Now, Verizon says it has decided in many cases to stop the fiber rollout outside the home. From there, old-fashioned coaxial cable will carry the data indoors. Verizon says the few feet of cable shouldn't slow data transmission speeds and may save more than an hour on the usual six-hour installation.
The ambitious rollout has met a harsh reality in many American streets and lawns. In Hillsborough County, Fla., Verizon contractors digging under the streets cracked a water main, flooded the streets and opened a sinkhole. After Verizon worked to soothe county officials, it got permission for its television service and started offering it this week.
Contractors laying cable a year ago cut into a line running to a Virginia home, causing a power surge that led to tens of thousands of dollars in damage. Verizon acknowledges the incident and says it compensated the family.
When it digs on customers' property, Verizon's goal is to return the lawns to their original shape. Marc Clemons, an aircraft mechanic who lives in Keller, Texas, says Verizon severed his sprinkler main and left his front lawn looking pinstriped after repeated digging and replanting. Mr. Clemons says he's happy with Verizon's response to the problems and loves his "lightening-quick" new Internet service.
Verizon contracts out much of the construction work for its fiber product. In one suit in federal court in Maryland, 23 day laborers claim they weren't paid for $25,000 in ditch-digging work. The laborers were recruited by a subcontractor for Verizon, says Laura Stack, the lawyer representing the men. Verizon says the subcontractor no longer works for the company and it is taking steps to ensure workers at contractors get paid.
Overall, Verizon spokesman Peter Thonis acknowledges some "start-up problems" but says they are easing as the company gains familiarity with the task.
Write to Dionne Searcey at dionne.searcey@wsj.com | |
johnsp
join:2001-02-07
Syosset, NY | Re: [new technologies] 3/8/06 WSJ Article - Verizon Hits Hurdles said by UofMiamiGrad:Originally Verizon talked of stringing optical fiber lines -- the same type that form the backbone of the world's telecommunications infrastructure -- directly into the living quarters of homes. Now, Verizon says it has decided in many cases to stop the fiber rollout outside the home. From there, old-fashioned coaxial cable will carry the data indoors. Verizon says the few feet of cable shouldn't slow data transmission speeds and may save more than an hour on the usual six-hour installation. Fiber just to the ONT has always been the plan. This article makes it sound like VZ backed off to using coax.
The article also fails to mention how the Internet, video and voice are multi-plexed onto 3 separate copper cables, one for each resource.
Trying to run fragile fiber inside a home would have have been the biggest mistake. A total inside rewire of a home would never had made economic sense. VZ made that call at the start of FIOS.
The original video plan might have been for pure IP TV, but I think everyone realized that it was not a bullet-proof technology that was ready to roll out yet. Heck the current STB's and DVR's still have bugs that need to be worked out. | |
ltt75
join:2001-01-22
Hollis, NH | reply to UofMiamiGrad
I felt ill after reading such garbage that's so bias against Verizon. The tone of the author is focused on short term gains, apparently no knowledge of the technology, and absolutely no vision of future applications utilizing 100mbps speeds. | | |
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| reply to johnsp
I agree completely... Running fiber directly INTO the home would have been a logistical nightmare, requiring complete rewires of just about every house in america. I don't think that was the original plan at all. | |
| I dont remember FIOS ever being about Fiber in to the home. Always F to TH. Not realistic to expect a household to have live invisible light inside their home. How many eyes get injured before they figure that was a BAD idea! Honey, I know why the internet aint workin', there aint no light coming out of this hear cable! Too bad the phone aint workin' cuz you need to call 911, I CANT SEE!  | |
 nycdavePremium,MVM
join:1999-11-16
Melville, NY
kudos:7 | reply to johnsp
Once again, the tech 'reporters' don't get the facts correct. FiOS has always been engineered for Fiber to The Premises, not Fiber Inside The Premises. The ONT is the network interface, just like the current copper NID. On SFU's (Single Family Unit), the copper NID is placed outside the premises just like the current FiOS ONTs. On MDU's (Multiple Dwelling Units), the NID is usually placed inside the premises. An MDU-type ONT is being developed right now that - 1. can be placed inside the premises (within each living unit - a smaller version of the outdoor ONT), or, 2. Can be placed in a central location that can feed multiple premises...It all depends on how close Verizon can place the fiber to the living unit - at the lowest total cost.
And all of this information has been discussed many times here and elsewhere.
I wish someone would set the record straight once and for all... | |
JohnAPremium
join:2003-09-16
Pittsburgh, PA | said by nycdave:I wish someone would set the record straight once and for all... The WSJ will never get it right.
The SBC plans never included FTTP. It was always FTTN, with the last mile on CAT3. They're now realizing that they'll have to go FTTP to carry what they want. The $6B figure was to the node, and now they have to add in the BellSouth cost. Also, as soon as they go to FTTP, the franchise issue rears it's ugly head. | |
TX Tech
join:2005-10-17
Lewisville, TX
1 edit | reply to johnsp
said by johnsp:The original video plan might have been for pure IP TV, but I think everyone realized that it was not a bullet-proof technology that was ready to roll out yet. Heck the current STB's and DVR's still have bugs that need to be worked out. From Day 1, the plan has been exactly what we are doing. FTTP. . . Fiber To The Premise. The only IPTV you'll see from us for now is VOD. That was the original plan and nothing has changed. | |
| reply to JohnA
said by JohnA:said by nycdave:I wish someone would set the record straight once and for all... The WSJ will never get it right. The SBC plans never included FTTP. It was always FTTN, with the last mile on CAT3. They're now realizing that they'll have to go FTTP to carry what they want. The $6B figure was to the node, and now they have to add in the BellSouth cost. Also, as soon as they go to FTTP, the franchise issue rears it's ugly head. Actually, SBC/ATT WILL have franchise issues regarless of the medium used to connect the premesis. It does not have to do with how they connect, but what services they offer. Offer TV and there is a franchise required. | |
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| reply to UofMiamiGrad
I get it, Life is unfair; But give me a break!
They still have not done Western Mass yet and now they want to stop!?!? OK, I can understand Boston (Eastern Mass) getting wired first, but then they did lower New Hampshire, Parts of North West Mass, North West Connecticut, and even Eastern NY.
So that means everyone around me is getting the full deal... Except anyone in The Springfield / Northampton Area. It's like making a circle and saying everything around it will be covered, except the few within in that circle.
Please Verizon, I want full fiber in my home! | |
 SteveConIBEW 2222 Boston, MAPremium
join:2004-09-02
Boston, MA | reply to nycdave
I don't understand. Verizon has an incredible product in Fios, people that realize it, long for it & snap it up as soon as it is available. I know, I've got it & wouldn't part with it. Other companies "competing" product is laughable. IPTV. Claims of 15M + over cable. Verizon's "Fiber To The Premise" (FTTP) is the most advanced product being deployed today, and will likely remain so for some time in the future, too.
Here comes the WSJ - that tower of technical know-how, gets investors uptight with their misinformation. It blows me away that there are folks out there who blasted "Ma Bell" for being noncompetitive & and not advancing the technology, they applauded the breakup for those reasons. Now, they turn around and are against the baby bells (or anyone but their darling CATV operator) providing TV. They continue to blast the Fios product in favor of the cable modem and TV over lossy coax, ignoring lousey internet throughput during prime hours, capacity limits for downloads, etc. Why is that?? They've always said competition was good.. apparently it is only when it at the bell's expense.
So, they'll keep running their mouths to delay / prevent new technology from reaching consumers, consumers who want it. Funny, isn't that one of the major reasons they wanted Ma Bell broken up 20 years ago??
When will these people be happy?
--
United we bargain, divided we beg. | |
nshulga
join:2002-06-06
Morrisville, PA | reply to UofMiamiGrad
So WSJ doesn't have a clue (or at least will behave is if it doesn't). This is not news. | |
| reply to UofMiamiGrad
Got B/GPON ??????
Go V* !! | |
| reply to TX Tech
This might be confusion from the suggestions that Verizon was looking into using coax for TV and data. Doing that could help reduce the costs from having to install Cat5. | |
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| reply to ltt75
The Wall Street Journal has *always* been about maximizing profits for the stockholder. That is, literally, it's reason for existence. (WSJ is owned by DowJones and Company, as in the infamous Thirty Industrials, which now includes, of all companies, *Microsoft*.) Because Verizon's plans are more capital-intensive than those of either BellSouth or SBC (before AT&T's acquisition), they have always been preaching that Verizon should scale those plans back. No, it's not news what the WSJ's take is; however, Verizon has *not* as the WSJ article has tried to claim, scaled back anything. The ONT is the demarc between Verizon's wiring, and the household wiring, and ONTs have always been part of VZ's planning. WSJ's reporters, their worldview shaped by the paper's ownership (DowJones) see capital-intensive projects as being a drain on shareholder dividends (never mind that Intel, another new Thirty Industrials member, has the largest percentage of revenue spun back into capital spending, and is also one of the few companies in the Dow Thirty to actually have a revenue *increase* over the previous year). In the thinking of DowJones, capital spending is usually *bad*, and increased stonk and bond dividends is almost always *good*. Not surprising, but of such thinking is usually spelled corporate disaster. | |
PDXPLT
join:2003-12-04
Banks, OR | reply to nycdave
Stupid WSJ reporting Of course. VZ never planned to use fiber for home networking.
This is just stupid reporting, probably by some liberal arts major with little understanding about what they are writing about. They are about as qualified to write about technology as I would be to write a paper on, say, all the hidden messages in "Ulysees" that show that James Joyce was a child molester (or whatever it is that English majors do).
These guys are never held accountable for these errors, either. 'wish I had a job like that. | |
| reply to UofMiamiGrad
Re: [new technologies] 3/8/06 WSJ Article - Verizon Hits Hurdles Well, the KEY argument is the lure of 100 megabits (symmetric) for video (over the internet?), as the "cablemodem killer" application. Which is to say, you'll get SO much bandwidth, you can do to cable companies what they've been doing to telcos a-la voip and triple-play services. Take their lunch, using our network (which is to say at a LOWER total price?!) Unfortunately, that hasn't been the case, yet. True Verizon is making some progress (to use an overstated pun/slogan) towards that goal, but it may be well into the buildout to realize some of these goals. It's also interesting to note 2 years into the buildout, inital speed offerings (and prices) have not changed to meet this 'challenge'. Its easy to criticize this effort in double digit months since starting, I remember cablemodem docsis buildout took approx. 3 years to reach entire network saturation (in the northeast) and longer elsewhere.
Verizon can't afford to take a myopic stance on broadband. The economics they argue goes against the grain of what they claim is too costly at current price points for the 100 megabit dream product (see: 'net neutrality' crossrefernced with verizon). You'd have to get subscribers to agree to a $150-200 (or more?!) price point for the 100 megabit product today. Don't we all wish it could be had for as little as $50 a month, hehe (all the while providing similar or better QOS to today's fiber internet product 5-30 megabits),but that doesn't reflect reality or sanity 3/9/2006. Its this reality that has everyone in a fit of one kind or another (reflected in the commercial with JEJ and all that higher and lower sign wielding sign moved by 'TOM').
The company line to this point has been, we've taken the leap of faith necessary to bring Verizon into a last-mile network with important attributes, namely stemming customer churn that plagued dsl subscribership (you can only play the 'dsl is getting better all the time, don't worry, please keep paying us $50 for 768kb, sir: company line, circa 2001) While cablemodems sat at 1.5, then 3 megabits with reasonable node QOS (more recently 10,15 & 30 for cablevison and others). The WSJ, shareholders and others can make a circular arguement that they are spending too much to acquire this golden goose's eggs called customer loyalty and market share (Ok, that's the customer perception, but from the view of corporate, that would translate abiet through rose colored glases as Return on Investment and Shareholder Value), but its still to early to tell how it will play-out. With 2006 being a possible break-out year for Video (again overstated, but beats the War on Terror hypocracy news), good old VZ has enough on their plate to focus on than deployment perceptions and banter.
Anywho, I'm just here to say, the burb buildout will most likely complete the last pieces of Long Island, by around April,May,June 2007 (there, I've said it, now they'll do everything to ruin my project target projections! I jest here, b/c I know a few LI vz dsl customers who would like FIOS
:-| | |
| reply to UofMiamiGrad
Keep in mind that cablecompanies can now provide 100/100 connections to custoemrs now to with narads technology.
their technbology even allows the cablecompanies to move to fttc if they wanted to. Cablevision has bought the technology and ran a successful trial of it on long island. They also stated 8 cablecompanies in total bought the technology.
I think atleast in cv's territory it will be a big battle considering they both can provide the same speeds and services.
Verizon should be able to wipe the floor with time warner and comcast though because those companies just don't want to upgrade their network. | |
| reply to UofMiamiGrad
My life is full of investment hindsights, failing to see how technology that surrounds me will take off, missing the opportunities to buy "no-brainer" companies like Microsoft, Cisco, and various internet stocks when they were still cheap.
Never has a case of a company focusing on their future and investing in the long-term ever been so clear to me. What Verizon is doing will make them a leader, it may take 5 or 10 years, I have no idea how long, but I know that they are deploying fiber the right away and if AT&T and others are only going to do the half-@ss solution of FTTN then they will be the ones suffering later when they can't offer the advanced services that FTTH can provide with its much higher bandwidth.
I welcome ignorant WSJ articles like this, maybe they can push VZ back down to $30/share so I can buy some more. | |
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