Verizon Communications Inc. got the go-ahead from federal regulators yesterday to sell long-distance service to consumers and businesses in the District, Maryland and West Virginia.
For consumers, the decision means another choice for long-distance service. For the nation's largest local phone company, it means a significant boost in its drive to sell long-distance and Internet services along with its bedrock local service.
Verizon and other regional phone providers were barred from selling long-distance service in 1984, when AT&T's monopoly was broken up into "Baby Bells" and the local and long-distance markets were separated. Verizon, formerly Bell Atlantic, held a monopoly on the local phone business in its region until 1996, when the Telecommunications Act forced the market open. As part of that legislation, the Bells were offered the chance to sell long-distance service as an incentive to open their networks to competitors.
So far, Verizon and BellSouth Corp. are the only two regional phone companies allowed to sell long-distance service in all the states in their regions. Verizon's region includes 13 northeastern and mid-Atlantic states and the District. The two other regional phone companies, SBC Communications Inc. and Qwest Communications International Inc., have applications pending with states and the Federal Communications Commission, which administers the terms of the 1996 act.
Now, because they are permitted to enter most of one another's markets, long-distance companies and the local phone giants are battling to keep their customers.
Telecommunications analysts say Verizon's ability to sell long-distance service is a big threat to major long-distance carriers such as AT&T Corp. and WorldCom Inc., which have been trying to fight back by selling their services bundled with local service they purchase at wholesale prices from the regional phone companies.
With more than 10 million local customers siphoned from the Bells to resellers including AT&T and WorldCom, Verizon's unfettered ability to market its own long-distance service is a big defensive advantage.
Resellers have taken 3.2 million, or 5.5 percent, of Verizon's local lines, accounting for roughly $500 million in revenue last year, according to Lawrence Plumb, a spokesman for Verizon. But the company has made significant inroads in the long-distance market, where it has about 10.4 million consumer and business customers.
Verizon will be able to sell to consumers in Washington, Maryland and West Virginia a bundled package of local, long-distance, wireless and high-speed Internet services. Analysts say the company will also be able to go after the lucrative business of selling data services to business customers.
"It completes the process of changing from a local exchange carrier to being an all-business carrier," Plumb said. Not being able to sell long-distance service means not being able to market Internet services. "It really hampers your ability to market to small to medium and large businesses," including the federal government, he said.
David Kaut, an analyst with investment firm Legg Mason Wood Walker Inc., said "it gives Verizon a leg up because they have the most natural enterprise market" in New York and Washington. Before, Verizon had to partner with other companies to sell Internet services to business customers because it didn't have approval in all its states. Now it can start investing in its own long-distance network and begin luring customers in those markets, he said.
Earlier this month, the FCC fined Verizon $5.7 million for prematurely marketing its services in states where it had not received approval to sell long-distance service.