Despite the most challenging environment in memory, a focus on fundamentals has enabled Verizon to emerge from the telecom storm with a stronger business model, said Doreen Toben, Verizon CFO, speaking at the Banc of America "Media, Telecommunications, and Media" conference in New York.
She highlighted consumer services, which already represent the largest percentage of Verizon revenues, as the fastest area of growth and the segment with the greatest upside potential for the company. In the past two weeks, Verizon has launched several initiatives to improve its DSL value proposition: it committed to an accelerated network rollout schedule aimed at creating "the largest broadband footprint in the US;" it cut DSL prices to $29 or lower per month for customers choosing a service bundle, it increased the base DSL speed from 768 kbps to 1.5 Mbps, it began offering MSN 8 features in partnership with Microsoft, and it offered to provide DSL subscribers with free Wi-Fi access from 1,000 hotspots in NYC. The company is expecting a surge of new DSL subscribers. Nevertheless, Verizon continues to lose local access lines both to UNE-P competitors as well as for technology substitution as consumers cancel second phone lines to the home. Toben said Verizon's consumer bundling initiative to provide local access, unlimited national long distance, DSL and wireless service on one bill will combat this trend. Local line loss trends already moderated in Q1 from their downward spiral in Q3 and Q4 2002, apparently due to success with the bundling initiative. Prices have since been cut further. More importantly, Toben stressed a need to make the various consumer services work together. To this end, Verizon will introduce a "Digital Companion" in the next few weeks that will provide an integrated address book for all wireline and wireless calls. The address book will combine Caller ID, email, paging and instant messaging contacts. It will synchronize personal calendar data across devices. A Digital Companion online portal will also provide a common box for wireline and wireless voicemail, real-time call logs, and the ability to launch teleconferences or IM sessions. The partnership with MSN is also expected to create greater subscriber "stickiness," reducing churn and providing greater opportunity to upsell customers to other premium services.
Verizon believes there is still plenty of opportunity to grow its wireless voice subscriber base by taking share from competitors. On the wireless data side, Toben predicts "nothing but growth ahead." During Q1, billed SMS was up 49% (200 million messages in March), 1x data usage was up 77%, and "Get It Now" downloads increased 120% (more than 2 million ringtones and games in March) compared to Q4 2002. Service ARPU was up 3% in Q1 to $47.20.
Verizon's business strategy will also focus on bundled services, an enhanced data portfolio, and an aggressive customer win-back campaign. Verizon hopes the new bundles will turn the tide on UNE-P losses for business customers as well. The company will continue to lobby for regulatory relief.
For the long term, Toben believes Verizon can achieve a sustainable cost advantage over its competitors by using new technology to gain network efficiency, using e-commerce to handle consumer and business billing and customer support, establishing better process automation to integrate facilities and logistics, and by combining advertising and sales strategies across its various customer segments. Verizon's financial guidance for 2003 remains unchanged. The webcast is available on the Verizon investor relations web page.http://investor.verizon.com/news/20030521/20030521.pdf
- For Q1 2003, Verizon reported 160,000 net additional DSL lines, compared to 148,000 net DSL additions in Q4 2002. The company ended Q1 with 1.83 million DSL lines billed.
Also in Q1 2003, Verizon reported 710,000 net additional long distance lines, giving it a total of 13.2 million LD lines. There was a 23% growth quarter-over-quarter in LD revenue.
There was stabilization or improvement in access line trends due to the popularity of unlimited local+LD service bundles. The number of UNE-P lines rose by 386,000 to 3.57 million lines, compared to 445,000 UNE-P new lines provided to competitors in Q4 2002. The number of resale lines declined by 50,000 to 999,000.
