Verizon To Offer High-Speed Fiber-Optic Network Services For Businesses - InformationWeek

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11/3/2006
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Verizon To Offer High-Speed Fiber-Optic Network Services For Businesses

Verizon sees fiber as its future. It's hoping the new venture, tentatively called Verizon Integrated Optical Services, will convince businesses to join its vision.

Verizon has spent billions of dollars over the last few years digging trenches and laying fiber optic cable throughout the Northeast and West Coast. While the public face of all that fiber is the carrier's FiOS service for consumers and small businesses, Verizon also plans to deliver managed high-speed network services to large businesses over the same backbone.

Verizon wants to manage the jumble of integrated protocols and physical layers that now make up corporate networks with what is internally called Verizon Integrated Optical Services, scheduled for mid-2007, says Tom Roche, VP of advanced data and IP services for Verizon Business. Networks are complicated by voice over IP, storage area networking, large file transfers, business continuity requirements, legacy systems, and the need for regular upgrades, Roche says. Verizon sees fiber as the vehicle for that load and its optical services as the driver.

IS THERE DEMAND?

Ups And Downs
Verizon's third fiscal quarter ended Sept. 30 resulted in:

147,000 new fiber optic services Internet customers

Revenue of $5.2 billion, up just 1.7% year over year, for its Verizon Business unit

Data (nonvoice) revenue of $4.1 billion, an 89% year-over-year increase

Revenue of $8.5 billion for its Verizon Wireless arm, making it the largest U.S. wireless carrier in the quarter

Total revenue of $23.3 billion, up 26%, while earnings were flat at $1.9 billion

Verizon also plans to expand fiber optic service for small businesses and branch offices, offering service-level agreements and upload speeds as fast as download speeds. Still, Roche drew a line between small-business services offered under the FiOS name and the higher-speed, managed business services it plans under VIOS. "For remote offices, for the branch, high-speed optical isn't going to make sense and never will from an ROI perspective," he says.

Roche could be underestimating the potential market. In New York, Optimum Lightpath, whose offerings start with a 10-Mbps fiber circuit, says speed and value are driving demand in industries such as health care and financial services, even in small offices. The Cablevision subsidiary, which serves 2,000 customers in the metro area, says one out of three new customers has fewer than 20 employees. AT&T also has seen increasing interest among small offices in the lower end of its fully managed OPT-E-MAN fiber line service, says Bob Walters, AT&T's executive director of metro data services.

Though fiber circuits can be costly, they're significantly cheaper per megabit than conventional access lines and much more scalable. In the New York area, a typical 1.5-Mbps T1 line costs about $500 a month, compared with $1,300 a month for a 10-Mbps Optimum Lightpath line. Verizon, too, already has the beginnings of a customer base for 10-Gbps fiber optics. Those superfast links mean clearer VoIP calls, faster access to real-time data, and, potentially, support for bandwidth-hungry video.

While Verizon's and AT&T's decisions to replace their copper infrastructure with fiber are seen by some as risky, the carriers had little choice, as they were bleeding customers and wireless still isn't a viable broadband option. Verizon estimates it will spend almost $23 billion between 2004 and 2010 on fiber optics. The pay of several of its top executives, including CEO Ivan Seidenberg, is tied partly to how well the company meets certain objectives for its fiber rollout.

Complicated service offerings, difficult integration, and confusing pricing have held many companies back from buying fiber optic services. "Simplification is absolutely necessary," says Forrester Research analyst Lisa Pierce. Verizon will need to offer uniform pricing and functionality regardless of where a business customer is located, she says. However, just as FiOS has been rolled out block by block, town by town, so will some of Verizon's business fiber services.

Verizon sees fiber as the future. It's challenge will be to make it simple and cost-effective enough for businesses to join its vision.

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