Verizon's Shammo: Enterprise spending is showing signs of life

Verizon (NYSE: VZ) may still be seeing slow growth in the enterprise space, but it's starting to see some potential light at the end of the tunnel that could bring it back into profitability over the next year. 

Fran Shammo Verizon CFO

Shammo

Speaking at the UBS 42nd Annual Global Media and Communications Conference, Fran Shammo, EVP and CFO for Verizon, told investors that while enterprise services revenues declined 4 percent year-over-year, they are seeing some uptick in areas such as the federal government.

"What I do see in the enterprise space is that federal government is coming alive, but we're also starting to see a little bit of a trend difference in the enterprise space, but it's going to take us about 8-12 months before you see dollars in the revenue stream because we're always on a lag from this."

Shammo added that while the company is seeing more sales activity, it won't be until "later in 2015 until we'll start to realize some of those benefits so I see a light at the end of the tunnel that it's starting to improve."

On the small to medium enterprise (SME) space, the service provider is seeing results being driven inside two key domains: FiOS markets and non-FiOS markets.

Given the nearly unlimited speed capability that can be afforded with a fiber-based FiOS connection, it should be of no surprise that the service provider is making headway against cable. However, in the markets where it only provides copper-based DSL, it continues to struggle against cable's growing base of HFC and fiber-based offerings for the SME segment.

"In FiOS we compete very well," Shammo said. "Outside of FiOS where I only have copper to compete against cable, I am not going to win that battle: We can't compete on speed and we made a strategic decision not to invest in that copper plant so now it's trying to maintain that and keep customers as long as we can."

At the same time, Verizon continues to improve the cost structure of its wireline business by migrating more of its customers from copper to fiber and decommissioning legacy Frame Relay and ATM switches.

While the copper to fiber migration has mainly targeted residential customers, the company is now turning its attention to migrating businesses off their legacy platforms to IP. By taking legacy switches out of its network, the service provider is seeing cost savings.

"We're now starting to go into more small businesses and attack switches," Shammo said. "We first did some trials in both Dallas and Florida to decommission a switch to understand how hard it would be and we learned a lot from that and this year we kicked off 10 switches outside of the New York metro area."

Shammo added that this second phase of switch decommissioning is more challenging and will take about 24 months to complete.

"These are more difficult because you have to work with small business, medium business and wholesale CLEC customers to move them off the copper plant," Shammo said. "You can start to see here that pattern of taking costs out each time we do that."

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