With its landline voice business continuing to decline at a regular clip, Verizon's (NYSE: VZ) CEO and Chairman Ivan Seidenberg has made it a goal in 2011 to drive growth in its wireline business.
Speaking at this week's 21st annual Citi 2011 Global Entertainment, Media and Telecommunications Conference in Phoenix, Seidenberg believes that the best way to achieve this goal is will be in advancing its presence in the cloud services segment, global network expansion to support multinational corporations and of course growing FiOS.
"We're going to put some muscle behind this whole idea of the cloud and put some muscle behind the idea of further geographic expansion of our enterprise network," Seidenberg said. "We're feeling good that we have an opportunity to kick up some basis points higher in the wireline business."
One of the first items on achieve Verizon's wireline growth agenda is the continual expansion of FiOS.
When Verizon initially launched FTTP FiOS strategy, the ILEC thought it would get 25 percent penetration in the markets it launched the service. However, in the markets where it has FiOS penetration for 36 months it is seeing 40 percent penetration on video and data.
"Our view of this is FiOS is 50 percent of the revenues in our consumer category, but after we sold the Frontier lines we'll be over 60 percent covered with FiOS moving toward 70 percent over the next year or so," Seidenberg said. "This means we could easily double the amount of video customers we have on that platform over the next two to three years and we're getting good margins on it."
Seidenberg added that by continuing to grow new services like FiOS, "the goal will be to stop the leakage out the back door on voice," and "between doing better on FiOS and putting some muscle into cloud I think we have a chance on increasing our revenues there."
As it continues to drive out more of its FiOS service, Verizon is going to need to drive more metro fiber infrastructure to backhaul that traffic.
Despite the growth it is seeing on its mobile networks, Verizon believes there will still be needed to have high bandwidth fiber-based facilities into homes.
Not surprisingly, the killer application driving the need for fiber is video.
"If you get underneath what's driving the fiber in the metropolitan markets it has been the need for increased video, increased reliability and security for customers," Seidenberg said. "The way we think about it is even though we have this great 4G mobile network, you still need to have fiber to the premises because we think your home will utilize a Gigabit of bandwidth."
Similar to Qwest and other players that are deploying fiber in their respective metro networks, Verizon is also multitasking its fiber infrastructure to serve as a platform to serve as an onramp for both businesses as well as residential customers.
"The way we look at it is we want to get fiber to as many business premises and cover as much as the footprint as we can and we believe everyone else going to do the same thing in other parts of the country," Seidenberg said. "If the incumbents or the MSOs don't do it then these little companies will do it and be the entrance facilities to homes and businesses."
One market opportunity that you won't see Verizon pursue anytime soon is an out of region metro fiber strategy.
"I would let others build that because if we show in our footprint that the demand for that fiber is there, customers will demand it of people in St. Louis and San Francisco," Seidenberg said.
He added that "we would deploy our capital differently and put it into vertical revenue growth and global expansion in terms of our enterprise footprint."
Getting serious about clouds
While FiOS will continue to be a large revenue driver for the ILEC, it is being no less aggressive in advancing the networks that will support its domestic and global enterprise business services segments.
And even though Verizon's 10 state footprint is much smaller than its ILEC compatriots CenturyLink (NYSE: CTL), Frontier (NYSE: FTR) and Qwest (NYSE: Q), it sees a lot of potential in clouds and enterprise networking. Growth in the enterprise segment will be a continual drive of IP-based services such as VoIP, Ethernet and cloud services.
"As you look at this constant shift between what goes in the network and what goes in the device, our view is over the course of time is the pendulum has swung back to the idea that there could be more in the network, so if there's more in the network, we can put everyone's IP address in and give them more security," Seidenberg said. "For enterprise customers, when it comes to network security and reliability they require, I think we have an opportunity to create a lot of software-based and managed services."
Seidenberg's comments about clouds are in line with its previously announced plan last October to expand its Computer as a Service (CaaS) service suite into data centers in San Jose, Calif., London, and Canberra, Australia in addition to lighting up CaaS data centers for the U.S. government in Miami and Culpeper, Va. in Q1 2011.
At that time, Verizon said the data center expansion was part of a $16.8 to $17.2 billion planned spending plan for "building, operating and integrating its advanced, reliable and high-performance networking and computing platforms."
Although the build out of data centers and the global network do require more capital spending, Seidenberg said that the build out of data centers is far less capital intensive than building out FTTH, for example.
"The capital required to build out data centers is much smaller as a comparison to what you need to do to build out FTTH," he said. "I think the level of capital will be in well within the range of the revenue growth we could create to do that."
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