Verizon's Daring Vision
Economists keep scanning the horizon for signs that business capital spending is about to revive. The latest report from the government, released on July 2, showed that orders for nondefense capital goods are still flat, with few indications of an impending revival.
In the midst of this stagnation, one encouraging piece of news is the commitment of Verizon Communications (VZ ) -- led by CEO Ivan G. Seidenberg -- to spend $20 billion to $40 billion over the next 10 to 15 years to build fiber-optic connections to every home and business it serves. Verizon is also deploying 3G, or third-generation, wireless technology faster than rivals and setting up Wi-Fi hotspots in Manhattan. Verizon's ambitious plans are becoming reality despite flat revenues for the phone industry and pricing pressures that make it tough to boost profits.
Seidenberg's leap into the future is one of the first real signs of life in the telecom sector, whose downturn helped usher the economy into its current doldrums. Communications equipment has accounted for roughly one-third of the decline in business equipment spending since the peak of the boom in 2000. Unless the telcos chip in and step up their capital outlays, a real recovery in business spending will be slow in coming.
Moreover, bringing fiber to the home has far-reaching implications for economic growth. Such fiber connections could provide more bandwidth than current cable modems, delivering brand-new services and entertainment to the digital household of the future.
So far, no other telcos have followed Verizon's example. As of July 23, Verizon is the only major phone company whose capital spending for the last quarter has increased compared with the year-earlier period. Capital expenditures at rival SBC Communications (SBC ) Inc., the second-largest phone company, are down almost 50% over the past year. Spending is also down at AT&T (T ) BellSouth (BLS ), Sprint (FON ) and Qwest Communications (Q ).
Could such prudence, bad for the economy, be the right course for individual phone companies? There's no doubt that Verizon's expansion plans are risky. Phone companies have announced fiber-to-the-home initiatives before, only to retreat in ignominy when the costs turned out to be too high, the technologies too tricky, and the payoff too low or too distant.
This time, though, Seidenberg seems serious and committed. We regularly chide CEOs for being too cautious. It's good to see one who isn't.