Verizon Sees Convergence Driving Market Expansion

"The overall communications market is expanding due to convergence," said Ivan Seidenberg, Verizon's CEO, speaking at the Bernstein Strategic Decisions Conference in New York earlier this week. This expansion will not be just a linear function of combining voice, data and video into a single offering, said Seidenberg, but a much broader expansion of telecom spending. Verizon estimates the overall U.S. telecom services market will grow from $440 million in 2004 to $570 million in 2009. Almost all the growth is projected to come from home entertainment/communication services, wireless services, and enterprise service. To capitalize on this opportunity, Verizon is pursuing a long-term strategy of building its FiOS consumer brand, upgrading its wireless network for 3G, and acquiring MCI.


Seidenberg said key differentiators for the upcoming FiOS TV service will include 175 all-digital video and music channels, competitive pricing, more HD channels (over 20) than cable competitors, at least 1,800 VOD titles, and a much more friendly interactive programming guide. The video content for FiOS TV is nearly in place, according to Seidenberg, as Verizon has now signed distribution deals with major content holders. Furthermore, early market trials for FiOS TV in Keller, Texas, have been "nothing short of spectacular." A consumer take rate of 30% has been well ahead of the company's expectations.


Verizon is undertaking a multi-state initiative to secure the necessary video franchise licenses for FiOS TV. Despite the recent regulatory setback in the Texas Legislature, Seidenberg said the company remains on schedule for initial market launches later this year. More than 200 franchise applications are underway. Seidenberg said getting these applications approved is a time consuming issue but that it could be done. Verizon is also working hard to change the regulatory environment to favor IPTV at the federal level. The the bulk of the FiOS TV rollout will start in 2006.


Seidenberg said the pending acquisition of MCI would provide added vertical depth and breadth in enterprise services, extending Verizon's presence in many markets. He said the MCI deal would allow Verizon to grow more quickly than SBC+AT&T -- its larger competitor .


Seidenberg also stated that Verizon Wireless continues to hold the leading market position in terms of net customer adds, churn, net service revenue growth, ARPU growth, network reliability and EBITDA. Verizon Wireless currently has 45.5 million users. The company is moving towards a common user interface across all its mobile handsets.
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