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Verizon Is Rewiring New York, Block by Block, in a Race for Survival
Eager to keep its phone customers and expand into Internet and video, Verizon is spending $3 billion to install fiber optic cable in New York.
By KEN BELSON
It’s 9 in the morning, and a team from Verizon has been stringing fiber optic cable along a residential side street in the Bronx for three hours. In a basket about 20 feet in the air, James DeMattia guides the cable from a giant spool into a plastic tube that runs between telephone poles and around the corner, where another crew pulls it through.
By walkie-talkie, his partner, Merrick Gilberts, confirms that the cable has made it the entire 1,000 feet to White Plains Road. They then get to work stringing cable 1,400 feet in the other direction. A few days later, another crew will install switches, so that by this fall Verizon can start selling phone, broadband Internet and eventually video services in the neighborhood.
Building a whole new state-of-the-art network is a laborious and expensive process that Verizon says it must undertake to fend off rivals like Comcast and Vonage, which are moving fast into the phone business. As Verizon replaces more of its old copper network with more durable fiber lines, the company also expects to save billions of dollars in maintenance costs.
Verizon will spend about $20 billion by the end of the decade to reach 16 million homes from Florida to California. But it is in New York City where Verizon has the most at stake, because New Yorkers are some of the nation’s biggest buyers of video, Internet and phone services. The company plans to spend about $3 billion to reach the city’s 3.1 million homes and apartments.
With such a high concentration of potential customers, competition is fierce — and Verizon has been losing ground. Time Warner Cable, Cablevision and others are stealing about 1,000 Verizon phone customers a day, and their discounted services are making it hard for Verizon to win them back — another reason to get the fiber network up quickly.
“The guys understand the importance of this fiber project,” said Robert Fighera, a lineman and chief union steward in the Bronx, nodding to the workmen nearby. “We’re also stockholders, and we know we have to install this or we’ll fall by the wayside of all these other companies.”
While the stakes for Verizon in New York are high, so are the challenges. To sell the television services that it believes will really help it win back customers, Verizon needs to win a franchise from the city similar to what Cablevision and Time Warner Cable now have, and similar to what Verizon already has in towns like Massapequa Park on Long Island and Nyack in Rockland County.
In New York, Mayor Michael R. Bloomberg’s office asked the City Council in mid-July to approve a measure that would allow the city to start negotiating new cable franchises.
“Competition among cable providers is a win for the city’s cable subscribers,” said Paul J. Cosgrave, the commissioner of the Department of Information Technology and Telecommunications, the agency that negotiates with Verizon and other companies interested in a franchise.
A City Council subcommittee will begin discussing the matter today. But the list of lawmakers and regulators who need to sign off on any new franchise is long, so it could take months before Verizon wins the right to start selling television.
Verizon faces more pressing hurdles getting its fiber lines in place. Nearly all cables in Manhattan are underground, so workers often must navigate serpentine conduits and congested streets. The company spends countless hours getting permits from the Department of Transportation and other agencies to pull up manhole covers, divert traffic and use public rights-of-way.
Though conditions vary widely, building underground fiber networks in highly congested urban areas can cost $100 or more per foot of cable installed, according to Michael Render, president of Render, Vanderslice & Associates, a market research firm. By contrast, placing fiber underground in the suburbs costs $7 to $25 a foot.
Since stringing fiber along telephone poles is often cheaper than burying it, Verizon is concentrating first on the Bronx, Staten Island and Queens, which have more single-family homes and cables above ground. By the end of the year, about 90 percent of the 170,000 homes on Staten Island will have access to Verizon’s fiber network.
Elsewhere, Verizon is trying to reach the most customers the fastest, which means building in neighborhoods with the greatest concentration of phone and data lines. The team in the Bronx, for instance, is connecting homes to the Cruger Avenue switching station, which handles about 75,000 phone lines, making it the second-busiest in the borough.
In Queens, workers have been connecting areas around the switching station in Bayside, which serves 85,000 phone lines. Verizon, which has been selling phone and data lines in the neighborhoods there, says that about 25 percent of the families that can buy the new services are signing up.
In time, the goal is to wire the city’s biggest apartment buildings so that Verizon can reach hundreds and possibly thousands of customers at a time. But to do that, Verizon must deal with landlords, who control access to the buildings. Like the cable providers before them, Verizon must negotiate rental fees with each owner before it can install its equipment, a time-consuming and expensive process.
“When you have a bunch of guys who own buildings seeing a big company with lots of money that wants more space in basements, they can play a gatekeeper role,” said Jeffrey Halpern, a telecommunications analyst at Sanford C. Bernstein & Company.
In Verizon’s territory, 22.4 percent of the housing is multifamily dwelling units, versus 18.2 percent in AT&T’s region and 15.7 percent on BellSouth’s turf, Mr. Halpern estimates.
But when landlords prohibit Verizon from installing fiber to each apartment, the company must use existing copper phone lines or cable lines to reach its customers. That can slow broadband speeds and diminish one of the fiber network’s biggest advantages.
To sidestep this problem, Verizon is negotiating with hundreds of developers to install its fiber network as buildings are being constructed. For example, the company got in on the ground floor at Octagon Towers, a new development on Roosevelt Island in the East River with about 500 apartments. As the buildings went up, Verizon installed fiber optic lines in hidden conduits, buried switching boxes out of view in closets and scattered jacks throughout the apartments.
Even there, Verizon couldn’t keep out the competition: Time Warner Cable and a company called MST NuVisions also offer broadband and other services in the building.
“The goal is to provide tenants with the most amount of choice,” said John Renner, who works for Becker & Becker, the developer.
Without a franchise, Verizon cannot sell its video service to residents at the Octagon Towers and elsewhere in New York. But in places where it is sold, Verizon’s television service, at $40 for about 200 channels, has attracted modest numbers of subscribers. Verizon says that in areas where it has been available for three months, the service has grabbed 7 percent of the market.
Cable companies say that figure is exaggerated, and they call Verizon’s television service a “me-too product.”
“There’s really no reason why anyone would want to switch from our service to theirs,” said Tom Rutledge, the chief operating officer at Cablevision, which competes with Verizon in the New York area.
Whatever headway Verizon makes, Cablevision and Time Warner are likely to respond with products of their own. The companies now offer faster broadband speeds and are signing up hundreds of thousands of customers — many of them formerly with Verizon — for discounted phone service.
The heated competition could spur Verizon to build its new network faster. There are just too many dollars at stake.
“This is a once-in-a-lifetime investment,” said Christopher Levendos, the director of engineering and planning for the fiber project in New York. “It’s revolutionary in size and scope, rewiring the entire copper system.”
