Verizon's TV Figures
Questioned
Lawsuit Alleges
Subscriber Numbers
Are Being Overstated
By CHRISTOPHER RHOADS
October 4, 2007; Page B6
Verizon Communications Inc.'s high-stakes plan
to deliver a super-fast fiber-optic connection to millions of its
customers has hit a possible snag: a lawsuit charging the company with
overstating television subscriber numbers for its new network.
Digital Art Services Inc., an advertising
company based in Great River, N.Y., alleged in the suit that Verizon
committed fraud by improperly including so-called pending customers in
its published number of subscribers in the New York City region to the
network, called FiOS. Digital Art Services claimed the allegedly
inflated numbers were used to determine advertising rates, causing it to
pay more than it should have for advertising on Verizon's network.
Pending customers are those who have signed up for the network but
haven't had service installed yet. Digital Art Services is seeking
class-action status for the suit.
"Verizon's fraud in overstating the number of
subscribers indisputably meant that purchasers of advertising time were
paying for FiOS subscribers who did not exist," the complaint said. The
lawsuit was filed yesterday afternoon in U.S. District Court for the
Southern District of New York.
Eric Rabe, a Verizon spokesman, said "if the assertion
is that we overstate our numbers we certainly reject that." He said,
"This is a garden-variety business dispute initiated by a customer who
wants to be released from a contract they agreed to."
Wall Street regularly studies Verizon's subscriber
numbers to determine the progress of FiOS.
As its fixed-line business decreases, Verizon has
largely staked its future on the success of the state-of-the-art
fiber-optic network. Verizon plans to use FiOS, which connects fiber
directly to homes, to better compete with cable companies by offering TV
service and ultrafast Internet connections, several tens of times faster
than prevailing Internet speeds.
Analysts and investors initially greeted the project
with skepticism, concerned about the billions of dollars in costs and
the years needed to complete it. During the second quarter the company
announced it had signed up its 500,000th television customer on the
entire FiOS network. The stock, which suffered because of the concerns
over the network, recently hit a 52-week high, traded at $45.24, down 10
cents, in New York Stock Exchange composite trading.
Digital Art's complaint also alleges the numbers
Verizon reports publicly are inflated because they include pending and
actual subscribers.
Mr. Rabe said the numbers in Verizon's quarterly
reports are connected customers.
Digital Art Services purchased $916,000 in advertising
on the FiOS service in early 2007, relying on subscriber data provided
by Verizon to an outside sales agent, Viamedia Inc., which was also
named in the suit, according to Ed Szydlik, president of Digital Art
Services.
Viamedia's president, Jeff Carter, said "We don't
engage in that practice" of inflating numbers. He said he hadn't yet
seen the lawsuit.
Digital Art Services, which has about a dozen employees
working on a contract basis, provides advertising services primarily for
local companies, arranging for advertising time and in some cases
designing the ads.
According to the Digital Arts lawsuit, Verizon said it
had 115,955 customers in the New York area by the end of the second
quarter. But more than 38,000 of those were pending.
The percentage of the total figure made up of pending
customers increased to 33% by the end of June from 22% at the beginning
of April, according to the complaint. The advertising rates, however,
were determined by the total figure, it said.
"My only concern is how many eyeballs are looking at
the screen," said Mr. Szydlik. "If you think you're getting 100, and you
only get 70, there's an issue there."
Mr. Szydlik said he was told by Viamedia that pending
customers get connected within two to four weeks, so the discrepancy
shouldn't matter. He said he discovered that many customers weren't
getting connected for months or longer. Verizon's Mr. Rabe said new FiOS
customers typically get connected within a couple of weeks.
Write to Christopher Rhoads at
christopher.rhoads@wsj.com1
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