When two domestic telecom powers go global in a down market, it might look as if theyre swimming against the tide. But few analysts threw cold water last week on the plans of Sprint and Verizon Communications to build data networks linking major cities around the world.
"Its surprising that they came on the same day, but I think theyre consistent with what other U.S. players are doing globally," said Blaik Kirby, an analyst at Adventis, a company that consults with major telecommunications companies. "Just to make sure they maintain their position domestically, they had to maintain an international marketplace."
Major business customers of both companies will have an easier time making global phone and data connections, the carriers promised. Plus, the companies see the international moves as critical to surviving as major players in a consolidating marketplace.
While Sprints plans might appear a logical extension of its U.S. network, Verizons new overseas reach shows how outdated the moniker "Baby Bell" has become. With a market capitalization nearly as large as those of AT&T and WorldComs combined, Verizon has emerged as a telecom juggernaut riding on the wheels of last summers Bell Atlantic-GTE merger. The company ranks fourth in the nation in long-distance service and has surpassed Sprint as a long-distance carrier in New York in less than a year.
To build its global network Verizon expects to invest $1 billion in fiber-optic cable, switching and transmission equipment. "I think its a natural transformation thats going on," said Thomas A. Bartlett, president of Verizons Global Solutions unit. "Clearly, weve made the push from local to national, and now were going global."
While expanding globally, the mega-Bell is contracting in areas where GTE and Bell Atlantic jobs have overlapped. The company will reduce its 263,000-employee work force by 10,000 jobs this year, largely through attrition, company execs said.
As U.S. regulators slowly expand Verizons long-distance territory in return for opening access to local competitors, the foreign markets make the regional Bell an international long-distance player almost overnight. That, in turn, makes Verizons domestic long-distance service even more attractive to its business customers.
For Sprint, the new global strategy is an effort to reduce dependence on falling long-distance income, with a goal of deriving 50 percent of revenue from data and broadband services by 2003. Thats a milestone Verizon has already achieved.
The added capacity of the networks is expected to add price pressures, as the companies offer wholesale deals on their excess capacity. Verizon expects to save at least $300 million in transport costs over five years of bypassing other carriers networks.
But, Kirby said, the demand for global connectivity among major business customers is so strong that leaders in the world market have little to fear. The biggest players remain Concert, a joint venture of AT&T and British Telecom, WorldCom and Global One, a former Sprint joint venture now in the hands of France Télécom. The growth of transoceanic fiber-optic carriers such as 360Networks, Global Crossing and Level 3 Communications in the U.S. is forcing a response from companies like Sprint.
The first phase of Verizons expansion will link New York with major cities in Europe, and the company plans eventually to connect cities in Asia, Europe, Latin America and the U.S.
The Sprint network will connect 15 cities in 13 European and Asian countries this year and cities in 35 countries by the end of 2003.