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Verizon wired for growth, success

It's a Hollywood script that begs for the sonorous tones of James Earl Jones, the ominous voice of Darth Vader and the omnipresent pitchman for Verizon:

"In a galaxy not so far away, there were two regional phone companies called GTE and Bell Atlantic. Each a local phone monopoly and bit player in wireless, long-distance and data communication. But together, they would become Verizon ... a force to be reckoned with ..."

Many employees and consumers aren't giving the year-old megamerger that created Verizon such rave reviews. Thousands of longtime workers were canned or uprooted. Regulators say customer complaints in Florida are running twice as high as a year ago. And nationally, thousands of customers waited in vain to get high-speed Internet access installed in their homes. For those customers trying to surf the Web "it wasn't a very smooth merger," conceded John Ferrell, president of operations for Verizon Florida.

Still, Verizon has accomplished something extraordinary: survival and growth as a traditional phone company in an era when telecom newbies such as PSINet and Winstar Communications fell apart.

Fed by the cash flow from its local phone operations, Verizon has nurtured its wireless and long-distance businesses. If it gets regulatory approval to bring back Genuity, its data services spin-off, the company could become the complete package in connecting to consumers.

"This is one of those cases where one plus one equals four," said Jeffrey Kagan of Kagan Telecom Associates of Atlanta, a telecommunications consulting company. "They've created a cohesive national presence which has not only given them reach they didn't have on their own, but also benefits the existing parts."

Verizon came together in bits and fits. Bell Atlantic, the Northeast regional carrier, bought New York phone company Nynex in 1997. Then came the $76-billion merger of GTE and Bell Atlantic. To top it off, Verizon picked up the former PrimeCo wireless operations under a joint venture with British wireless telephone giant Vodafone AirTouch PLC.

The resulting conglomerate is now the No. 2 telecom company on the Fortune 500 with $64.7-billion in sales last year, just a few billion shy of AT&T. Verizon co-chief executive Ivan Seidenberg boasts that his company is now the country's No. 1 wireless carrier, No. 2 digital subscriber line, or DSL, provider and fourth-largest long-distance company and climbing.

It has wireless networks in 96 top U.S. cities and local phone lines in 31 states. With its successful branding of the new Verizon name, it became the first national company created out of the old regional Bells. And it can compete with giants AT&T and AOL/Time Warner.

"They were both already well-established, particularly Bell Atlantic. To completely rebrand that was a gutsy move and it's paid off," said Bob Lane, a telecommunications analyst with the Yankee Group in Boston.

Verizon president and vice chairman Larry Babbio lists progress to date:

Verizon is on track to save $2-billion a year by the end of 2003.

While the venture capital spigot has been turned off for many alternative phone companies, Verizon has ample cash flow to fund the rollout of new technology. Babbio estimates the company will spend $12-billion on capital improvements this year.

Despite the early difficulties with DSL, the deployment of broadband is growing by more than 30 percent a year compared with 3.5 percent growth for standard residential phone lines. From 220,000 DSL customers a year ago, Verizon expects to reach 1.3-million customers by year-end.

Verizon Wireless is strong; it picked up 800,000 customers in the second quarter alone.

Verizon proved it will be a force in long-distance, using the attraction of bundled services to pick up 26 percent of the long-distance market in New York just 18 months after entering the state.

The weakest link, the Genuity business of providing Internet data services to businesses, is having "an okay year," Babbio said, though he's quick to add that the whole industry is suffering.

"Frankly, the biggest disappointment is the state of the economy," he said. "We came through a very good integration plan, had a couple of reasonably good quarters and then all of a sudden everything has gone through a tailspin."

Crossbreeding cultures

From the early days of the merger, there were culture clashes to fix.

GTE had a centralized structure; Bell Atlantic dispatched key execs across different states.

Moreover, the Bell Atlantic/Nynex operation was twice as big as GTE. While Bell Atlantic dominated large metro areas such as New York City, GTE local phone service was largely rural. The Tampa Bay region was its largest metro area.

"Some people have looked at this merger and said it looks like great big Bell Atlantic is swallowing little GTE," said John Blanchard, president of the Tampa-based Southeast region for Verizon.

Blanchard, who came from the GTE side, admitted he was concerned at first whether GTE's rural perspective on providing universal phone service (affordable, subsidized phone service to all areas) would survive.

"I was very satisfied," he said. "There appears to have been a coming together ... a melding of the minds."

GTE's use of "trouble analysis centers" to help pinpoint problem areas, for instance, has become a model throughout the Verizon network. Verizon maintains its practice of taking the best out of each company has helped it achieve more than $500-million in annual savings.

Measuring success

Financials aside, perhaps the fairest way to judge the merger's success is its impact on the two groups that matter most: employees and customers. Both are a mixed bag.

Verizon has as many as 15,000 fewer people on its payroll than nine months ago, Babbio said. But he attributes about half of that to normal attrition in an organization of more than 200,000 employees and about a third to cutting overtime hours and contractors.

Neither Babbio nor other Verizon executives would be precise about actual job cuts except to say they are in the thousands. In Florida, where Verizon has laid off workers in data services and other areas, the job count is still at the premerger level of 14,000 with hires in fast-growing areas countering the cuts.

Babbio thinks morale is bolstered by a new union contract last fall and a new pension plan and retiree benefits adopted last month.

Ezra Singer, who heads the company's human-resources unit, insists the new plan was "not a cost-cutting exercise" but an attempt to take the best of GTE and Bell Atlantic and improve upon it.

The old GTE savings plan, for instance, matched 75 cents on the dollar for the first 6 percent of an employee's salary invested; now the match is 83 cents on the dollar for the first 6 percent.

"This benefits program really puts Verizon at the top among the largest companies in America," Singer said. "The feedback we've gotten from former GTE (employees) has been very positive."

Not all employee representatives are so enamored.

The Communications Workers of America, known as the CWA, accuses Verizon of obscuring the number of jobs cut so far and blocking attempts to organize union representation for Verizon Wireless employees.

The CWA, which represents about 95,000 Verizon employees nationwide, applauded last year's strike settlement with Verizon for leading to improved job conditions, less forced overtime and more flexibility for call center workers.

But union spokesman Jeff Miller said the ongoing dispute over organizing Verizon Wireless workers overshadows such progress.

According to Miller, Verizon is violating a clause in the strike settlement in which the company vowed to remain neutral in organizing campaigns. "Look at their Web site and the kind of information they're putting up there kind of poisons the atmosphere for us," he said.

Babbio counters that Verizon is merely trying to provide employees with as much information as possible to make an informed decision. "I think the union has found it a little harder to organize than they expected," he said.

Satisfaction: Go figure

The merger's impact on customers is tougher to gauge.

Customer service, a bane of GTE and Bell Atlantic during different parts of the 1990s, has improved overall, according to regulators and observers.

The latest American Customer Satisfaction Index, done with Michigan State University, ranked Verizon just behind BellSouth in satisfaction scores and said it was the only local phone company to improve its score over the year. Morgan Stanley Dean Witter said Verizon had the highest customer satisfaction in data, local service and wireless, while Fortune magazine named Verizon the third-most admired telecommunications company.

In Florida, though, customer satisfaction is a bit more muddied.

Verizon Florida is getting higher marks than GTE in handling outages. In fact, the Florida Office of Public Counsel, which charges the premerger GTE with missing targets for power restoration too often between 1996 and 1999, said the company's record has been virtually spotless since. "You have to give them credit," Public Counsel spokesman Charlie Beck said, adding with a laugh, "Gosh! I'm saying nice things about them."

The record isn't equally nice when it comes to other service issues in the state. The Public Service Commission said it has received 557 complaints during the first six months of the year about Verizon problems such as improper billing, repair issues and delays in connection. That's close to the total number of complaints for 2000 (605) and 1999 (517).

The PSC said the complaints are up in part because of Verizon Wireless customers who erroneously complained to the agency, which does not regulate wireless. But Barry Ray of the PSC said such misdirected wireless complaints would be lumped into an "other" category accounting for fewer than 130 of this year's 557 complaints. The PSC also said that the 2001 numbers, like the 2000 and 1999 figures, have not been adjusted for complaints subsequently linked to companies other than Verizon.

Verizon Florida spokesman Jim Marzano questions the validity of the figures. He prefers to gauge performance by a separate PSC breakdown of service and billing complaints logged against Verizon that shows 207 complaints logged in the first five months of 2001 compared with 251 in the year-ago period.

Marzano also notes that a PSC consumer awareness campaign may have increased the tally of calls to the agency about Verizon.

Regardless, Verizon doesn't challenge the validity of complaints by customers such as Clearwater resident Wondel Smith Jr. Smith was being erroneously billed $19.95 a month for Internet service through Verizon and got caught between two different agencies: Verizon Internet Services and Verizon Direct Services. After initially being denied a credit to his account, Smith said he spent months sorting out the "lies and contradictions" from the two Verizon agencies.

"I thought it was unbelievable they were billing me for services I didn't receive," he said.

Ferrell, Verizon's president of Florida operations, acknowledged the unit handling DSL for high-speed Internet access as "the one area where service did take a hit." He blamed it on a regulatory requirement of the merger to operate the data services unit separate from the rest of the company.

As a result, requests for DSL hookup were lost; customers received errant bills; large customers were frustrated.

But Ferrell insists the data services issue was an isolated case. In all other respects, he deemed the merger the smoothest among the four he has gone through in the industry.

"Did we have distractions? Absolutely," he said. "But did those distractions manifest themselves into a service issue? No."

The latest widespread episode involving disruption of service apparently had little to do with the merger.

A Verizon computer bug is being blamed for shutting down long-distance telephone service throughout the bay area for more than 10 hours earlier this month. Beyond preventing long-distance calls in and out of the area, businesses couldn't accept credit cards and no one could use a toll-free number to reserve airline tickets.

Ironically, the use of more sophisticated, intertwining technology may have exacerbated the problem. The paralysis would not have been as widespread years ago when networks were simpler.

Ferrell hinted at some concern about Verizon's continued performance during the rainy season. In the past, the company has moved some workers from installation to repair as seasons change. Moving through the summer and fall with a static head count is "a challenge," he says.

An eye toward the future

In the months ahead, Verizon has to continue the balancing act of investing enough in new technology such as wireless without letting its wireline business deteriorate. It has to differentiate its online offerings as superior to those offered by the cable companies, a feat made tougher after the merger of AOL and Time Warner.

One of the trickiest challenges lies in Verizon's merger commitment to add at least 250,000 wireline customers out of its franchise area within three years. One way it's meeting that goal is through Verizon Avenue, an initiative to roll out broadband service to customers in newly built apartment complexes outside existing Verizon service areas.

The problem is that regulators inserted the out-of-franchise clause as a way to push Verizon into the strongholds of other local phone providers such as BellSouth and vice versa. In other words, to create true local phone competition.

Verizon's response: The merger commitment doesn't specify how Verizon is supposed to add customers and it doesn't make economic sense to challenge other local providers on their home turf.

Critics also question whether the new company is exploiting the old GTE territory to its advantage. Is it ignoring opportunities in California and Florida in long-distance, for example, as it goes full speed into markets such as New York and Massachusetts?

Analyst Bob Lane, for one, wonders if Verizon isn't still a a New York-centric institution, ingrained in the Bell Atlantic East Coast mentality.

Babbio dismisses such concerns.

"If you came up to New York, you'd hear just the opposite," he said, noting that the nationwide head of operations came from the GTE side.

"With two different companies (and) totally different operating systems, there's always cultural issues," Babbio said. "But there were a lot of positives, too. There were many more positive surprises than negative."

_ Jeff Harrington can be reached at harringtonsptimes.com or (813) 226-3407.

VERIZON BY THE NUMBERS

Here is a look at Verizon's fastest-growing businesses nationwide since last year's merger of GTE and BellAtlantic. Verizon does not break down numbers by state but has specified the percentage growth in its Florida business units since the merger.

Customers Florida

Unit June 2000 July 2001 Growth

Verizon Long Distance 3.5-million 5.2-million 11 percent

Verizon DSL 220,000 720,000 73 percent

Verizon Wireless 25.4-million 28-million 31 percent

+ As of March 31, 2001

Source: Verizon

A Verizon report card

Branding UP SYMBOL (OR THUMBS UP) _ The Verizon check-mark symbol and the rich sound of "Verizon" rolling off the tongue of James Earl Jones are ingrained in our psyches after a year.

DSL DOWN SYMBOL _ Merger glitches marred Verizon's effort to sign up new customers for digital subscriber lines, or DSL, at a time its rivals were busy rolling out the technology for high-speed Internet access.

Wireless UP _ With the former PrimeCo wireless phone business as a base, Verizon Wireless was a national brand from the get-go. Continues to build momentum.

Data communications FLAT _ Off to a slow start. Great potential but the company may be grinding gears until it can meet regulatory concerns that keep it from bringing its data business Genuity back into the fold.

Long-distance FLAT _ Success in signing up customers in New York is countered by a slower-than-expected performance elsewhere.

Rates FLAT _ A mild cost-of-living increase and increased charges for 411 directory assistance are the only noticeable add-ons for consumers so far. But it's early . . .

Customer service FLAT TO UP _ With the problems nagging GTE and Bell Atlantic in the early to mid-1990s, you'd think no direction but up was possible. Much stronger customer satisfaction scores are partly offset by problems in DSL, customer billing and elsewhere.

Investors FLAT TO UP _ Verizon's stock can't escape the telecom market meltdown of 2000, but the company is emerging in much stronger financial position than most competitors.

_ JEFF HARRINGTON

CAN WE TALK?

In the first six months of 2001, 557 complaints about Verizon service were lodged with the Florida Public Service Commission. That's nearly as many as in 2000 (605 complaints) and more than 1999's total (517). The figures represent preliminary contacts with the PSC that may or may not have been linked to a Verizon problem. Among the biggest complaint categories:

Complaint Number

Query received

Improper bills 128

Other+ 127

Repair 81

ADSL++ 41

Delay in connection 40

+ Includes complaints about non-regulated Verizon affiliates such as Verizon Wireless.

++ Asymmetric Digital Subscriber Line offered mainly to businesses for fast Internet access.

Source: Florida Public Service Commission

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