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Verizon Selling Off Directories

These are interesting times for telcos. Maybe it's time to let their Internet operations go their own way.

That's the thinking of Verizon Communications . On Sunday, the company announced that it was reviewing strategic alternatives for the domestic operations of its directories publishing business, Verizon Information Services (VIS).

Those options could include a spin-off or sale of the unit, which includes SuperPages.com, the directory site that's emerged as a competitor in the white-hot local search and pay-per-click advertising market.

In a statement, Verizon Chairman and CEO Ivan Seidenberg said, "Given the attractive opportunities developing in the local search and advertising markets for VIS, we believe a divestiture would provide VIS with more flexibility to maneuver in the fast-changing environment of content providers. VIS could then more easily seek partnerships, meet customer requirements and create its own growth opportunities."

VIS prints almost 1,200 Verizon directory titles with a circulation of approximately 121 million copies; its operating revenue was $3.6 billion in 2004. But SuperPages.com is its entree into the lucrative search advertising realm.

A redesign in February added pay-per-click ads on its pages, thanks to a partnership with FindWhat. SuperPages.com also syndicates its listings to MSN and InfoSpace .

In November, the site introduced Yahoo-like community features, including product comparisons and consumer ratings of businesses, as well as the ability to buy products on the site.

"The directory business is undergoing radical change, but it's still a fabulous, very profitable business," said Peter Zollman, principal of research firm Classified Intelligence. He said it will continue to be profitable, but growth will slow.

Combining national and local search on SuperPages.com created increased opportunity for profits, he added, freeing VIS from the limitations of local print directories. While the major search providers continue to move into this territory with their local search products, Zollman said, "Yes, there is competition and threats, but it's still a great business."

Spinning off VIS as an Internet search-focused company could create a snazzier stock. At the same time, Verizon's board of directors hopes the move would sharpen Verizon’s focus on its three core network-based businesses: wireless, broadband and enterprise. The company also needs to focus on closing its merger with MCI.

Verizon hired Bear, Stearns & Co. and JPMorgan Securities to evaluate options; the company said it could complete the sell-off in 2006.