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What's On The Horizon For Verizon In Puerto Rico*

In an exclusive interview, Ivan Seidenberg, president and co-chairman of the board of Puerto Rico Telephone’s parent company Verizon, reveals what’s in store for Puerto Rico, including a revamp of Celulares Telefonica, faster Internet connections, and better long-distance service


September 13, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Meeting the global challenge: For Verizon’s boss, Ivan Seidenberg, the reinvention of Puerto Rico Telephone is a microcosm of what he’s doing with the company worldwide

"The acquisition of PRT has been very successful…. PRT is a microcosm of what we’re trying to do with the whole company," said Ivan Seidenberg, president and co-chairman of the board of Verizon Communications, parent company of Puerto Rico Telephone (PRT), during his first visit to Puerto Rico.

His "whole company" is a 259,000-employee operation in 44 countries in four continents that last year generated $65 billion in revenues. Verizon is one of the 10 largest companies in the world.

In an exclusive CARIBBEAN BUSINESS interview, Seidenberg articulated his vision of Verizon’s operations worldwide by reference to PRT’s successful performance in the last two and a half years following its controversial privatization.

"Look at PRT and all that our local team has done. We’ve increased investment, improved customer service and systems, introduced new products and services, and grown the wireless network. The local management team negotiated a new arrangement with the union and put in new compensation plans for the employees. We’ve strengthened our core; and when you strengthen your core you have the ability to become global. Our view of becoming global is to be the preeminent company in the local market and utilize our global resources of Verizon to continue to expand," said Seidenberg.

Verizon, born from the merger of Bell Atlantic and GTE, which was finalized in June 2000, gained control of Puerto Rico Telephone as a result of GTE's purchase of controlling interest of the Puerto Rico Telephone Co in 1998, a deal finalized in March 1999.

At the moment Verizon has 40.01% plus 25 shares of Puerto Rico Telephone, Popular Inc., the parent company of Banco Popular, owns 9.99% of the shares, and the PRT employees hold 7%. The government still holds 43% minus 25 shares of the telecommunication company but has the option of selling these in the future.

Verizon also has the option of buying an additional 15% of the company before March 2002 and the government could also offer the remaining 43% at any moment.

"There’s an option for us [Verizon] to buy the rest of the shares the government holds. The official answer is that we haven’t decided yet. The unofficial answer is we love the property and we would love for the opportunity to be presented to us. When the option comes due, we will make a decision," said Seidenberg.

Broader, cheaper cellular services

According to Seidenberg, the first order of business to maintain PRT’s preeminence in the local telecommunications market is a total overhaul of the technology infrastructure used by its wireless division, Celulares Telefonica (CTI).

"We’re going to start to roll out an overlay for code division multiple access (CDMA) wireless technology sometime at the end of the fourth quarter. This year alone, PRT’s investment in that project will be $40 million," Seidenberg said. Although he wouldn’t provide the figure, the final tab for the entire system revamp will be several times that amount.

Verizon uses the technologically more advanced CDMA protocol in every wireless market except Puerto Rico, where CTI’s network was originally built using time division multiple access (TDMA) before GTE gained control of the company. That means that in order to roam elsewhere in the Verizon network–including the U.S. mainland and the Dominican Republic–a CTI customer has to pay high roaming charges.

It also represents a competitive disadvantage for CTI because network upgrades for TDMA are lagging behind those available already for CDMA technology. That in turn means that CTI customers are losing out on more and better quality services already available in the world market.

But now, starting this November, new CTI customers will use the CDMA network, while current customers are slowly changed to the new technology through the exchange of handsets. By the end of the first quarter 2002, PRT expects to have full CDMA coverage across the island.

"The implications of this are huge. The two biggest advantages for the customers here will be, first, that the quality of service with CDMA will be better and, second, since we will now be using the same technology as on the mainland, the customer will now be able to roam seamlessly across all other markets we serve without having to pay expensive roaming charges. It’s a huge benefit to the consumer," explained Seidenberg.

He also pointed out that adopting CDMA technology better positions PRT to offer third generation (3G) telecommunication services, as CDMA has been further developed in this area. 3G refers to advanced wireless data transmission services, such as fast data transmission from the Internet to your cellular handset, or being able to use the cellular handset for a number of functions, such as opening your garage door, operating your T.V. set, or purchasing a soda at a vending machine by automatically debiting your bank account.

"We’re deploying the latest Lucent technology in terms of the so-called ‘mini cells,’ which have higher capacity, are smaller and are G3 capable, so we will be ready to move to the next generation," added PRT President Jon Slater.

In Puerto Rico, besides CTI, wireless carriers Cingular and Sun Com also use TDMA technology, while MoviStar, Centennial and Sprint, use CDMA.

More high-speed Internet access

Besides the total revamp of the Celulares Telefonica network, Verizon plans to expand PRT’s broadband services to allow more high-speed Internet access to local customers.

Earlier this year, PRT launched digital subscriber line (DSL) services allowing customers in certain areas to have high-speed Internet access with a basic service that is five times faster than current modem connections.

"We’re rolling out DSL at a fairly brisk pace," said Seidenberg. "We have around 2,000 customers right now and project 3,000 by the end of the year. And we have a 100% growth projection for next year, so by the end of 2002 we should have around 6,000 DSL subscribers."

Seidenberg explained that there’re three challenges PRT has to meet in order to accelerate deployment of DSL. "Our copper network needs upgrades in the neighborhoods where we deploy, not because the copper isn’t up to speed but because it was built with amplifiers on the network. The DSL connection requires a clean piece of copper. So as we go into the neighborhoods we need to do some work first. The problem is that sometimes demand gets ahead of our ability to get the upgrade done."

The second issue is compatibility with the modem of some manufacturers. This issue is gradually being addressed by the manufacturers themselves, as they now offer DSL modems that are more compatible.

The third is a customer care issue, helping the customer along to ensure that the setup, configuration and connection of his or her particular computer at home is DSL compatible.

"DSL is still a little bit like a fragmented set of components that have to be put together right. For a 14 year old nowadays, this is all very easy. But we have to continue to make it easy for other customers as well. But each quarter that goes by we get better at it. On the mainland, when we first started putting in DSL, we would spend 35-40 minutes on the phone with customers. Now it has gone down to 10 or 15 minutes," explained Seidenberg.

More long distance products and services

Seidenberg admits that things have been relatively quiet in the long-distance market recently. But according to him that’s because PRT’s competitors are still figuring out what to do to meet its challenge.

The company intends to continue to expand its long-distance products and services. For example, next November, the company will re-launch its post-pay long-distance card.

"The local long-distance market is very competitive. We think that our product and services have made a big impact in the marketplace. Our market share, particularly in off-island service, continues to grow. So in less than two years since we’ve entered the market, we are in the top tier of companies."

Growth in the very competitive long-distance market has been slow and now other services are eating away some share. For example, new technologies, like the Internet, allow people to place calls for a flat fee.

"More people are using the Internet to make calls and more people are using wireless. Whenever you get a new technology, like the Internet or wireless, at first it tends to add to your business, but eventually it substitutes for it a little bit. From a business perspective, it’s smart for us to have a product that is already competitive and facing technological competition. It doesn’t make sense for the competitors to keep bringing the price down to the point where you can’t make a profit," said Seidenberg. "Long-distance service today is very well priced, people get a good value for it, we’re pretty stable, but we’re all there watching as other technologies begin impacting long-distance service."

Still, Seidenberg flat out discards the possibility of PRT pulling out of the long-distance market in Puerto Rico. "We wouldn’t pull out. Part of being PRT, of being a dominant carrier, is the responsibility to provide full services. I don’t mean a government-imposed obligation. I mean that this is a commitment to our community and our customers. When you look at the 85-year-old tradition of this company [PRT], you see that people have an expectation that we provide basic communications services."

Expansion in Latin America

Verizon’s president is very clear on where his company is going and the role its local subsidiary, PRT, will play in that expansion plan. "I look at the entire Americas as a single opportunity for us. In the next 10 years we need to expand in all of Latin America. Ten years ago, the U.S. used to be Europe-centered–and Europe is still a big market. But in the next 20 years, the center of gravity will go south as opposed to going east."

Seidenberg said Verizon is getting ready to meet Telefonica de España’s preeminence in Latin America. "If you look at Mexico and the Caribbean, we’re well positioned. Telefonica is better positioned elsewhere in Latin America. We need to find good local partners in order to expand in different countries and continue to grow. And you do that through investment, acquisition, and partnering. You have to do all three."

And as Verizon moves south, it will leverage on its experience with PRT in Puerto Rico. "Because of PRT’s presence and how far advanced it is as a full service provider, it becomes a natural place to become a hub, so we can design our growth around this hub and expand throughout the region that way," Seidenberg said.

He believes the marketing experience Verizon has gained in Puerto Rico will serve it well not only in Latin America but in U.S. mainland markets. "Unlike the rest of our operation in the States, PRT has integrated wireless and wireline services. It’s what we call bundling of services. We’ve learned a lot about how the local customer sees the connection between the two."

Seidenberg believes the sophistication of the local customer has taught Verizon valuable lessons. "Customers in an island economy are more sophisticated than you think because they’ve always had to deal with global business. I believe that the customer here is as sophisticated as any telecommunications customer could be," he said.

According to Seidenberg, Verizon’s expansion throughout the Americas will be anchored in the company’s two core competencies: being a network operator and having superior customer care. "We run networks; build them and operate them everywhere in the world. We put our engineers in Venezuela or Chicago and they talk the same language. The same with customer care; we move our billings and operating services staff and our service rep people all around to implement our core competencies in customer care. This is what IBM does, what the large pharmaceuticals do. It’s what being global is all about"

Slater agrees. "The core network that PRT has, with its tiers of fiber-optic rings coupled with the ATM network, positions us very well. The network is a core competency that makes us, PRT, more attractive and makes Puerto Rico more attractive when it comes to a transshipment port, for example. The strength of our infrastructure here will support those projects in a way that nobody else can touch. This is a lift for both Puerto Rico and PRT," concluded Slater.

*CARIBBEAN BUSINESS goes to press on Mondays, therefore the articles in this edition do not reflect the terrible events occurring in New York City and Washington, D.C. on September 11, 2001.

This Caribbean Business article appears courtesy of Casiano Communications.
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