Subject: [NEXTEL-1] Verizon Sets Up Phone Booths to Give Access to the Internet

From: [email-masked]
Date: Fri, 16 May 2003 00:53:36 -0400

May 14, 2003

Verizon Sets Up Phone Booths to Give Access to the Internet
By BARNABY J. FEDER

Verizon Communications yesterday introduced one of the oldest items in its inventory — the
humble phone booth — as its newest weapon in the bitter competition to dominate the broadband communications market of
the future.

Verizon said that subscribers to its high-speed Internet access service would be able to
go online wirelessly at no charge when they are near a Verizon phone booth in Manhattan.

Verizon said that 150 phone booths — from the Battery to Columbia University — had already
been equipped with radio-signal technology, popularly known as Wi-Fi, to enable mobile
computer users who are within 300 feet of a booth to connect to the Internet. About 1,000
booths covering virtually all of Manhattan and a few spots in the other boroughs will
become Wi-Fi "hot spots" by the end of the year, the company said.

The new service was announced yesterday along with a bundle of price cuts and service
enhancements for Verizon Online — the company's D.S.L., or digital subscriber line,
service — which provides fast Internet access.

Verizon, the nation's largest phone company, has been struggling to catch up with rivals
in the high-speed broadband market. So far, cable television companies have signed up
twice as many broadband customers as the phone companies have. And among the phone
companies, Verizon has trailed SBC Communications.

Verizon loses money on Internet access services but analysts have said that Verizon and
other former Bell companies have to offer competitive online service plans if they are to hang on to their current customers
and attract new ones as competition increases in the traditional phone business.

Analysts said the changes announced yesterday added up to a big improvement in Verizon's
broadband offerings. But the announcement came on a day when AT&T said it would begin competing with Verizon to sell
local phone service in Virginia and Maryland, and Cablevision Systems announced plans to
sell phone service on Long Island, another Verizon market, this fall over its cable
network. The news sent Verizon's share price down 11 cents, to $37.39.

"Things are only going to heat up further from here," said John Hodulik, who follows
telecommunications companies for UBS Warburg.

Important elements of Verizon's new broadband package had already been promised, like free
use of MSN 8.0, the latest package of Internet programming and software support from Microsoft. Others, like a
significant price cut in Verizon Online, had been leaked in recent news reports. Thus, the
most intriguing part of the service improvements is the new wireless service, which will
be available only in New York.

Verizon, which is based in New York, sells local service in 29 states. Over the long term,
analysts said, Verizon could use its hundreds of thousands of phone booths in major cities from Boston to Honolulu to become
one of the nation's most extensive networks of hot spots for wireless Internet connections.

Until now, Wi-Fi hot spots have been offered free in a few public areas by cities like New
York and San Francisco or by individuals sharing their signal transmission equipment — sometimes without realizing it —
with anyone in the neighborhood.

Some companies have been trying to build networks of hot spots in places like airports and
Starbucks coffee shops where visitors can log on, but have charged relatively high prices
for the service.

"This is the first attempt to mass market Wi-Fi in the United States," said David
Burstein, editor of D.S.L. Prime, a newsletter that tracks Internet services.

Because the Wi-Fi service is being offered free with Verizon Online, it will be difficult
to determine how much value consumers will assign to it. As a result, Verizon's marketing experiment is not likely to answer the
question of whether Wi-Fi service can be profitable in its own right.

But Verizon's announcement was welcomed as a major boost by Wayport, a leading start-up
company in the fast-expanding Wi-Fi industry. Wayport, which is based in Austin, Tex., has
hot spots in 525 hotels and 12 airports, charging consumers $19.95 a month, or $6.95 a day
at airports.

Wayport's plan for profitability envisions forming alliances with large phone companies
like Verizon and AT&T that might bundle Wayport into their own networks or sign roaming
agreements to share customers, said Daniel J. Lowden, the company's vice president for
marketing.

Wayport is already working on such an agreement with Verizon's cellular phone business,
Mr. Lowden said, and Verizon's plunge into Wi-Fi as part of its D.S.L. strategy is seen as
an important endorsement of the technology.

Verizon, for its part, was cautious about its expansion into the Wi-Fi market. "We're
clearly at the bottom end of the learning
curve of what this will mean to the users," said Bruce Gordon, president of retail markets
for Verizon.

Verizon said that while it expected to expand the Wi-Fi offering to other major markets,
like Washington, Boston and Seattle, where it has many online customers, it would not make a definite commitment until it had
studied how the service was used in Manhattan.

And Mr. Gordon denied speculation that Verizon was planning to sell Wi-Fi access
separately to computer users who are not Verizon Online customers.

Verizon said that it cost roughly $5,000 to create a Wi-Fi hot spot. But the company said
it did not expect the Wi-Fi investment or the price cuts to its D.S.L. service to hurt
earnings this year.

Verizon said that these costs would be offset by lower churn rates the number of customers who drop service each year and growth in the enrollment of new broadband subscribers. Verizon, which finished last
year with about 1.8 million broadband customers, has said it may need nearly twice that many to begin making money from the
service.

Verizon's new package roughly doubles the top access speed for its D.S.L. service. That
makes it comparable in many cases to the broadband speeds offered by cable television
companies, at least for now.

But cable companies can boost their speeds. Indeed, Comcast, one of Verizon's largest
cable competitors, already provides premium-priced service twice as fast as Verizon's new
top speed to a small number of business customers.

Verizon will cut prices to $34.95 a month for regular subscribers and less than $30 for
subscribers who also buy Verizon's package of local and long-distance phone service. That pricing structure gives Verizon a
$5 to $10 price advantage over the cable services and is comparable to prices offered by SBC Communications, which reported
2.5 million D.S.L. subscribers at the end of the first quarter.

The price cuts are expected to increase the pressure on the slower dial-up services,
including the dominant players like AOL and Earthlink. Just 16 million of the 60 million
American households online at the end of 2002 had broadband service, but the industry has
assumed the broadband share will climb rapidly if the price declines.

http://www.nytimes.com/2003/05/14/technology/14NET.html