Verizon Communications is no longer satisfied to be the largest
telecommunications carrier in the U.S. It unveiled plans Wednesday to burst
out of the U.S. market and create a global broadband network carrying data,
Internet and voice.
“This is a logical next step for Verizon because it will help unlock the
full value of our network and our core business,” said Eduardo R. Menasce,
president of Verizon’s Enterprise Solutions Group, which manages the design,
operation and maintenance of networks for large business customers. “We
believe that our global network perfectly positions Verizon to become a
leading presence in the large business market, which is the fastest-growing
segment in the U.S. telecommunications industry and generates $140 billion a
year in revenues.”
Verizon is acquiring fiber-optic cable, switching and transmission equipment
and related network software to deploy the broadband network, with the first
phase — linking New York to London, Paris, Amsterdam, Brussels, Frankfurt
and Milan — scheduled to begin operating by second quarter 2001. Verizon
already operates links between New York and Toronto and between Hawaii, Hong
Kong, Tokyo and Sydney, and those cities too will become part of the
network. Additionally, over the next two years, Verizon plans to expand the
network with direct links to leading commercial and financial centers like
Geneva, Zurich, Madrid, Singapore, Buenos Aires, Caracas and Mexico City.
Completion of the first phase of the network will require the outlay of
significant capital, but Verizon said the investment has already been
incorporated in its capital budget and in the financial guidance for 2001
and 2002 that it issued last year. Also, Verizon said it anticipates a cost
savings of at least $300 million in transport costs over the next five years
because routing international calls over its global network rather than
paying other carriers to transport the calls will be significantly less
Verizon has created a new business unit, Global Solutions Inc. (GSI) to
oversee the project and manage the network.
“We will manage and operate our global network by owning the switches and
controlling our own transmission facilities, rather than just re-selling
capacity and services on another carrier’s network,” said Thomas A.
Bartlett, president of GSI. “And we will support our network with
outstanding customer care, including Web-based services such as provisioning
and billing. As a result, we will be able to offer a facilities-based
network that connects commercial centers around the globe and that provides
an array of voice, data and Internet services to large business, wholesale
and residential customers. Our prices will be competitive and our service
will be outstanding.”
Verizon is turning to its allies to help it complete the network on
schedule. FLAG Telecom and Metromedia Fiber Network Inc. (MFN) — Verizon
holds ownership stakes in both — will lend their muscle to get the ball
FLAG Telecom owns and operates a high-capacity, undersea cable system that
links Europe, the Middle East and Asia. It is currently laying a
trans-Atlantic cable between New York, London and Paris and is scheduled to
begin operating it next month. The company is also developing FLAG North
Asian Loop, to connect major cities throughout Asia, and a trans-Pacific
MFN, meanwhile, owns fiber-optic infrastructures within key metropolitan
areas in the U.S. and internationally. It has already deployed more than 1.2
million miles of fiber and plans to hit 3.6 million worldwide by 2004.
While FLAG Telecom and MFN lay the fiber-optic infrastructure, GSI plans to
operate gateway switches in New York, Los Angeles, Honolulu and London to
aggregate data and voice traffic and route it over the network. It plans to
build a European network operations center in a suburb of London.
Analysts Wednesday c
autiously lauded Verizon’s plans.
“This is a good and necessary move by the company, and one which is
consistent with our view of where the ILECs have to go in order to sustain
growth,” Goldman Sachs said. “In addition, utilizing the transmission
capacity of existing suppliers (i.e. FLAG, MFNX) is exactly the right
approach in executing this strategy.”
But, Goldman Sachs said it is essential that Verizon not get mired in the
pitfalls that so many other companies have struggled with in this space.
“…it should be noted that having transmission facilities equates to
actually being able to provide the service and winning the business in a
profitable way,” Goldman Sachs said. “Examples of unprofitable efforts in
this regard are plentiful. Thus, while we applaud the company’s efforts, and
agree with the strategy, we don’t expect an important or profitable
contribution to results any time soon. The impact of VZ’s entry into this
segment of this business on existing carriers should be immaterial
initially, but long term has the potential for the kind of increased
competition that we anticipate domestically.”
Initially, the Enterprise Solutions Group plans to target large business
customers in New York — where it received regulatory approval to offer
long-distance service in December 1999 — and to business customers that
were served by GTE prior to its merger with Bell Atlantic to form Verizon.
Once the company gets regulatory approval, it will also target customers in
New England and mid-Atlantic states. Approval is already pending in
Massachusetts and the company said it will file for approval in Connecticut,
New Jersey, Pennsylvania and Rhode Island this year.
Internationally, the company has already negotiated an exchange agreement
with Canadian affiliate TELUS, which will allow that company to utilize the
network. Verizon also has operations in 18 other countries and Bartlett said
it is negotiating similar agreements with other affiliates.