Is Verizon rebound-ready?

In announcing its second-quarter earnings, Verizon today acknowledged that business services revenues are slowing down because of the weak economy.

Business revenues were down 6.7% year-over-year— a bigger drop than expected by some analysts, including Craig Moffett of Bernstein Research — and new chief financial officer John Killian acknowledged that “cumulative unemployment is affecting usage volumes” while businesses are delaying purchases and upgrades because times are tough.

AT&T had reported similar results, with its CFO, Rick Lindner, citing the finance, transportation and manufacturing industries, in particular, as areas where AT&T has seen retraction.

Both companies said their “strategic” business services — managed services and high-value data offerings such as Ethernet and MPLS-based networks — continue to grow.

The real question for these two giants — and for the rest of the telecom industry — is what happens when the economy comes back. At that point, I would expect to see some cutthroat competition on two fronts: managed/hosted services for large and multinational companies, and all services sold to small- and medium-sized businesses (SMBs).

Denny Strigl, chief operating officer for Verizon, insisted to financial analysts that the company is not losing small business customers to cable competitors.

“We are seeing an economic impact and some shift to wireless, but we think we are holding share,” Strigl said. “There has been limited impact due to cable competition, but we will monitor that closely.”

The economic downturn has prompted many in both the business and consumer markets to look hard at how their money is being spent, and when the market does rebound, which it will, there are likely to be more opportunities for technology improvements. A small business that has gone wireless for cost purposes might be more open to a cost-effective fixed/mobile convergence solution, for example, while options such as managed security and hosted storage will hold a growing appeal for businesses of all sizes.

Verizon Business has been very active in rolling out enhancements to its data offerings, including the recent cloud computing service, security that goes to the application layer and Ethernet bandwidth-on-demand, an industry first. That would seem to buttress Strigl’s contention that the company is poised for the recovery on the global business side.

The SMB market may be the bigger challenge, as the cable industry is definitely gearing up for a fight. Verizon is leveraging its FiOS fiber-to-the-premises investment for SMBs and will do so more aggressively, Strigl promised, particularly to multiple dwelling units. That will be a critical market to watch when the inevitable rebound occurs.

E-mail me at carol.wilson@penton.com.