Verizon's IXC dreams

Verizon Communications wasted no time in bringing out IP-VPN services after launching its national IP backbone last month. The carrier's intentions are clear: It plans to go after the lucrative high-end business customers that have for so long been customers of AT&T, MCI and Sprint.

So just how much luck will Verizon have in getting those customers? Luck has nothing to do with it. According to Adventis analyst Blaik Kirby, Verizon's success depends on exactly how low it undercuts the prices of the IXCs on all fronts: transport, local access and voice. (See story below, In Print.) If Verizon can offer enough of a bargain, Kirby said, some of those multi-nationals might decide that the IXCs' one-stop shop might not be worth the price and opt for a split-network approach to their domestic network needs, just as many of those same multinationals rely on several carriers in Europe.

The question is how low is that price, and is Verizon really willing to go there--especially considering the price degradation and line losses that have damaged its core businesses over the years. Verizon does have the advantage that it is already providing much of the local high-capacity fiber infrastructure that the Fortune 500 relies on in the Northeast and mid-Atlantic. As for its new nationwide transport network, it's hard to imagine Verizon could squeeze any more cost savings out of its new MPLS backbone that the IXCs haven't.

Long-distance, however, may be the key. And conveniently for Verizon, its new IP-VPN services are a handy way to deliver nationwide packet voice. While many of the IXCs will be afraid to cannibalize their core long-distance revenues, Verizon has absolutely nothing to lose. Its long-distance gains since getting FCC approval have been almost exclusively on the residential side. It has no high-end business to cannibalize, and thus a greenfield opportunity for voice-over-IP.

Let the price war begin.

Contact me at kfitchard@primediabusiness.com.