December 2004

To Fight, Verizon Switches

Fighting to stay relevant as telephony, television, and the Internet merge, telecom giant Verizon is installing new switches and fiber that could provide all of tomorrow's media services--whatever they turn out to be.

By Michael Fitzgerald

Verizon's future starts where the scuffed green floor ends on the second story of a windowless brick blockhouse in Baldwin Park, CA, a Latino community east of Los Angeles. Past that point, the building's old asbestos-filled floor tiles were removed in March and replaced with shiny white ones, marking the place where circuit switching, the method long used to connect one phone to any other, gives way to packet switching, the technology that makes the Internet so powerful. It's a project that promises to change Verizon's business -- and eventually, the way we all think about phone service.

Pamela and Grant Jacoby, husband-and-wife members of the Verizon project team who are showing off their new system to a reporter, say they celebrated their anniversary by going to dinner and then coming here to watch a HazMat team rip out the old flooring. Romantic? No. "But how many times do you get to see that?" says Grant, as his wife laughs.

The reason for the Jacobys' excitement is simple: in Grant's words, "We're getting rid of the public switched telephone network." But what does Verizon, the nation's biggest phone company, build in its place? A new network that makes more efficient use of its switching stations and physical wires by working more like the Internet, and that wires up customers' homes with high-capacity fiber-optic lines. With such an infrastructure in place, the theory holds, the longtime supplier of plain old telephone service can change into a new kind of company, one that can compete in a world where media giants like Comcast are blending services such as television, telephone, and Internet access.

Listen to people like the Jacobys, and it's easy to imagine that in a few years Verizon customers may not even have phones, or at least not ones that only make phone calls. Instead, they'll have devices that surf the Web, transmit video phone calls and still pictures, and deliver TV programming, TiVo style. Customers will use their cell phones to instant-message their kids' TV screens that it's time to stop playing video games and start doing homework. They'll control what their phones -- or rather, their personal telecommunications networks -- do in a way that's simply impossible today.

Or at least, that's what Verizon executives hope. The company astonished Wall Street and telecom insiders in January when it announced that it would spend $2 billion over the next two years to move to Internet-type switching -- a far more ambitious overhaul than those planned by its sibling phone companies, such as SBC and BellSouth. (Verizon's changeover is distinct from the other hot trend in telephony, voice-over-Internet-Protocol services; those run primarily on the Internet, not the phone network.) But while projects like the Baldwin Park conversion are well under way, Verizon managers admit they're spending the money without a full understanding of how the new network will be used or what services consumers will want most. According to Paul Lacouture, president of Verizon's network services group, it's an investment the company has to make simply to survive in a fast-changing industry. Moving to packet switching now, he says, means "we future-proof our network."