Telecom's advances on hold?

By Sean Hao
Advertiser Staff Writer

The pending sale of Verizon Hawaii could mean customers of the state's largest phone company will have a long wait before they see some of the telecommunication industry's latest advances.

Verizon announced in May it would sell most of its Hawai'i business to The Carlyle Group, a Washington, D.C.-based investment firm, for $1.65 billion. The sale is awaiting regulatory approval which could come as early as next month.

Carlyle, which plans to change the name of the company to Hawaiian Telcom, says it typically holds its investments for four to five years. Telecommunications analysts said that may be too short a time for major infrastructure investments.

"The real big push these days is some sort of fiber deployment," said Daryl Schoolar, a senior analyst with telecommunications industry research firm In-Stat. "I think that's really what you're not going to see in Hawai'i in the near-term as long as Carlyle is an owner.

Verizon and Carlyle say they aren't slighting customers in Hawai'i.

"Hawaiian Telcom will invest substantial sums to develop and provide new and exciting products," said Mike Ruley, the CEO of the proposed Hawaiian Telcom, in an e-mailed reply to The Advertiser. "The success of this investment depends on our ability to evolve and grow the company and to provide the products and services that people want and need."

Likewise Verizon Hawaii spokeswoman Ann Nishida said the pending sale has had no impact on decisions about rolling out new services locally.

Already, in select Mainland markets, telephone companies are offering new services via fiber-optic lines as a competitive alternative to cable and satellite TV providers. Fiber-optic lines offer higher speeds than currently available to Hawai'i consumers.

Carlyle says it plans to boost customer service in Hawai'i by bringing back to Hawai'i certain jobs now done on the Mainland. That could increase labor costs. The local phone company's debts will also rise from $425 million to $1.5 billion because of the nature of the sale.

At the same time, Carlyle, which historically has generated a 2.8 times return on investments, also insists it won't raise the rates it charges for phone service for 10 years.

The added costs and holding the line on rate increases could make it difficult to pay for Carlyle to pay for needed network upgrades and the rollout of new services.

"How can they spend all this money on new technology, not raise rates and achieve their extraordinary returns?" asked Verizon Hawaii customer Brice Conquest of Kahala.

John Cole, executive director for the state Division of Consumer Advocacy, gave his backing to the Verizon sale last week but said his negotiations with Carlyle did not include discussions of plans to deploy fiber to Hawai'i homes.

"That's something we thought about," Cole said. "Carlyle couldn't say that they had any plans to do that here in Hawai'i. On the flip side of that, if Verizon kept the business, they had no plans to do that either."

Hawai'i businesses and residences may already be feeling the effects of the pending sale of Verizon Hawaii. Verizon Hawaii customers recently were offered the company's highest speed Internet offering. However, they are not being offered a local area code for Internet-based phone services and cost-saving options that bundle wireless phone and satellite TV programming on one bill.

Such new services are now being offered by Verizon on the Mainland in a growing number of markets, but not in Hawai'i.

"I think it's status quo until the acquisition is compete," said Yuka Nagashima, president for Internet and business services company LavaNet Inc.

Verizon spokeswoman Nishida said the lack of certain new services in Hawai'i had nothing to do with the pending sale of the company.

"All bundles and services Verizon offers are not available in all regions so Hawai'i is not unique in that situation," Nishida said, said in an e-mail reply. "For example, the DirecTV bundle is available in about half of the states Verizon serves.

"Fiber is rolling out in nine states as just the first wave of a multi-year initiative."

As one of the nation's largest telephone companies, Verizon may have been more likely to bring fiber-optic lines to Hawai'i than Carlyle. Verizon is among a small number of carriers capable of deploying fiber on a statewide basis. Carlyle has experienced telecom officials on its payroll, but is not a major player in the telecommunications industry.

Nagashima, whose company is both a Verizon customer and competitor, said it's unlikely Carlyle will build a high-speed fiber-optic network to area homes.

"It's too much expense compressed into too short a time required to recoup costs," she said.

Still, Nagashima said consumers could benefit from the sale of Verizon to Carlyle if promises of local management improve customer service.

Another issue consumers may face should the deal with Carlyle go through is access to current Verizon products at comparable discounts. For example, Verizon customers now can receive special discounts by signing up for broadband Internet service and Verizon long-distance phone service. Carlyle would have to partner with a long distance carrier to offer local customers a similar bundle.

Carlyle said it expects to offer similar product packages as Verizon. Among these is a planned wireless phone service, though details have yet to be worked out.

"At first, we expect to offer most of Verizon Hawaii's existing products branded as Hawaiian Telcom," Ruley said. "Over time we will introduce new products and services."

In-Stat's Schoolar agreed that Carlyle should be able to continue offering services and price packages customers already have from Verizon.

"I would expect to see a bundling of services," Schoolar said. "You need a willing partner, but these days there are plenty of willing partners."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.