Despite NorthPoint Communications insistence it is not done with them yet, Verizon Communications told a group of investors Thursday morning it is moving forward with a revised national DSL expansion plan funded by the money it saves from the failed merger.
Verizon announced late Wednesday afternoon its intention to walk out on an $800 million ownership investment, nearly one month after making a down payment of $150 million to NorthPoint shareholders in the form of convertible preferred stock.
Verizon intends to keep the stock, possibly to keep a foot in the door for increased ownership down the road.
Despite the loss of NorthPoint and the DSL footprint that would have let them expand outside its current territory, Verizon is still expecting an eight percent growth in 2001 and 12 percent growth in 2002. Fourth quarter 2000 earnings are expected to remain in the 76 to 78 cents per share range.
Officials also said the company will still reach its goal of 500,000 DSL customers by the end of the year.
Verizon expects to save 12 cents per share next year and 13 cents per share in 2002 on stock that now won’t be diluted by the NorthPoint acquisition. While seven of those 12 cents will stay in its stock, the Baby Bell intends to continue its national expansion with the remainder of the savings.
Larry Babbio, Verizon’s telecom group vice chairman and president, said his company has an aggressive national expansion planned that will see them in 11 cities throughout the U.S. the next 12 to 24 months.
He expects to meet that goal despite NorthPoint’s obvious importance in providing business DSL services, centered mainly on synchronous DSL. Entrance into these cities is through large enterprise contracts, followed by targeting consumer customers down the road.
“DSL is important on a nationwide basis,” Babbio said. “We think that building off of our facilities in our territory and the facilities we own nationwide will get us there. I think we had originally focused on residential services, while NorthPoint was geared more towards the small- to medium-sized businesses, but I think we have a good product set to provide SDSL and meet our year-end goals.”
In a conference with investors, Babbio was firm in his insistence to keep nationwide expansion within the family, only working outside its facilities-based operations when absolutely necessary. Only in specific cases, he said, will Verizon go through the unbundled loop of another telco.
To do that the telco will build up its presence in facilities owned by Metromedia Fiber Network, Inc., in which it has a 10 percent ownership stake, its 9.5 percent ownership of Genuity Inc., and its September acquisition of One Point Communications out of Georgia.
That ownership translates to larger earnings per share down the road, Babbio said. Because of the ready-made presence, Verizon only expects to spend less than $100 million to get service ready in four of the cities, while seeing a return on the investment in the $200 to $250 million range.
What wasn’t explained clearly was Verizon’s intentions to keep state and federal regulators happy, now that the NorthPoint merger has fallen to the wayside.
Verizon is the marriage of regional bell operating centers Bell Atlantic Corp. and GTE Corp. One of the conditions to its approval earlier this year was to prove to the Federal Communications Commission and state regulators $500 million would be spent outside of the two company’s territory.
That stipulation looms a little larger, now that the deal with NorthPoint has been nixed, but Verizon maintains its acquisition of One Point and ownership in MFN are still a good start to meet regulator approval.
It remains unclear whether Verizon can extricate itself from the NorthPoint merger. The competitive local exchange carrier said it is still reviewing options, financial and legal, to address Verizon’s action
Liz Fetter, NorthPoint president, said the company’s current problems were not reason enough to cancel the merger of NorthPoint and Verizon’s DSL operations.
“I am stunned to get the news after months of conversation with Verizon on the strong business opportunities available to the combined entities,” Fetter said. “Verizon was not entitled to terminate these agreements, and we are exploring all our options, including funding options and legal remedies.”
Verizon contends it has every right to end its relationship with the CLEC, pointing to revised third quarter results that had NorthPoint losing $6 million in revenue and increasing its earnings before interest, taxes, depreciation and amortization loss to $90 million, about $11 million more than what it had originally reported.
NorthPoint blames deadbeat private ISPs who reneged on payments, which amounted to a loss in revenue from about 26,700 DSL customers, or about 31 percent of its customers.