Verizon Lays It on the Line
Wednesday, February 1, 2006
His company's stock has sunk, its debt has been downgraded, and its investment in a new fiber-optic network is regarded by some as a pipe dream, but Verizon Communications Inc.'s chief executive is certain he is doing the right thing.
"This is almost religious . . . religious with proper financial accounting," Ivan G. Seidenberg said with a laugh during an interview this week.
Seidenberg, 59, is by no means a messianic executive. Soft-spoken, self-effacing, and dressed in a sober suit and crisp blue shirt, Seidenberg is faced with deep skepticism on Wall Street about Verizon's multibillion-dollar investment in a fiber-optic network to carry TV, high-speed Internet and old-fashioned phone service.
Seated in his corner office in Lower Manhattan with intricately carved maple paneling and a sweeping view of the city skyline, the executive betrayed no hesitation about his strategy, saying it was the best way to reinvent a company whose roots stretch back to the opening of local telephone exchanges in the Northeast in the late 1870s.
"When it's all said and done, the growth opportunity here will be far greater than anybody is accepting at this point," he said, suggesting that Verizon's fiber-optics project could someday allow people to consult their doctors by video link, to telecommute in numbers large enough to reduce global warming and to enjoy services not yet dreamed up.
Doubts about the undertaking -- which is called Fios and is expected to give consumers far greater bandwidth than Verizon's main competitors now offer -- have helped drag the company's stock down by more than 10 percent over the past year and influenced Moody Investors Service's and Standard and Poor's Corp.'s recent decisions to downgrade Verizon's debt.
Analysts are particularly worried about the company's spending on Fios as Verizon's traditional local phone business shrinks -- it lost nearly 3.5 million lines last year alone -- in the face of competition from cable, wireless and Internet phone providers.
Company officials say the line losses are easily offset by growth from Verizon Wireless Inc., high-speed Internet and long-distance service. To Seidenberg, wireless is another example of an area where the company had the vision to make early investments over the objections of skeptics -- and now it's driving the company's growth.
"Even 20 years ago, people never saw the full capability of wireless, but yet there were people in the industry, some of us . . . who believed that this was going to change behavior, and you know what, [we] were right," he said.
Speaking softly but intensely, Seidenberg said 2006 is likely to be the year in which the Fios investment drags the most on Verizon's earnings per share, to the tune of 25 to 30 cents.
"You have to spend money to make money," he said. "It's fair to say that in '06 we are hitting about a level of dilution that would be about the maximum, and that from now on out, we'll start to get better."
The company's second-ranking official, Lawrence T. Babbio Jr., the vice chairman and president, said Verizon has made significant progress in cutting the cost of installing fiber -- which it initially estimated at $1 billion for the first 1 million homes.