I Can See Verizon Risin'

There's gold in them thar ILECs.

I know, I know, guys like my pal Scott Moritz are always telling you the incumbent local exchange carriers are headed for the junk heap. Scott's particularly bearish on Verizon , the ILEC for the northeastern U.S., because he thinks the company's core business is melting away.

I'm here to tell you that's not so. When I look at Verizon, I see a company that owns a monopoly on phone access in a big chunk of the country and draws steady growth from its wireless, its DSL/data and, increasingly, its long-distance businesses. I see a company whose pressing competitive challenges remain years off. I see a stock that yields 3%, which is far more than I'm getting in my savings account right now, I'm afraid.

But that's not the half of it. Verizon is becoming increasingly aggressive with cost-cutting measures, and people like Scott have underestimated the growth potential here. As the teleconomy begins to recover, earnings estimates will march higher -- along with this stock.

The Finish Line

What Verizon has is the last mile, the physical connection that links the phone network to your home or office. Lots of companies have built out long-haul networks and metro networks and all kinds of other networks -- but ILECs such as Verizon own practically all the last-mile connections.

I can't overemphasize the importance of these access assets.¿ Sure, cable operators will eventually make a full-scale move into telephony. But any serious threat to the ILECs remains at least a few years away.¿ This, after five years of deregulation. Until then, all phone-based services flow through the Verizons of the world.

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Case in point: DSL. Remember when competitive DSL providers were going to lay waste to the "slow-moving" ILECs?¿ The analysts were dumbfounded that the ILECs were letting Covad, Rhythms and Northpoint build out their DSL networks; we were going to see the ILECs scramble to catch up.

Bell-Ringer

But a funny thing happened on the way to the dump.¿ The DSL triumvirate spent billions of dollars and years of effort making DSL technologies viable and marketing their effectiveness. But then they went away (except for Covad), leaving -- who else? -- the ILECs as the dominant DSL providers.

Meanwhile, a leaner and meaner Verizon is outgrowing its Bell-headed inefficiency. A sign of this transformation: Verizon will be the first ILEC to be able to provide long distance in all the states in which it's the incumbent. That will enable the company to leverage its impressive brand to capture market share, expanding its growth opportunities.

Hey, nothing personal, Scott, but Verizon's a gold mine. You just have to look a little harder.