A conversation Ivan Seidenberg, Chairman and CEO of Verizon

A conversation Ivan Seidenberg, Chairman and CEO of Verizon


Ivan Seidenberg is here. He is chairman and CEO of Verizon
Communications. His career began 40 years ago as a phone line repairman.
After serving in Vietnam, he started working for Nynex and quickly rose
through the ranks. In 1998, he orchestrated one of the biggest telecom
mergers in history between Bell Atlantic and GTE. The resulting giant was
dubbed Verizon in 2000.

Today, the industry faces technological upheaval and economic
uncertainty. Verizon’s ambitious new fiber optic network called FIOS costs
$23 billion. On the wireless side, the company is constructing a fourth-
generation network geared towards the Smartphone. I am pleased to have
Ivan Seidenberg at this table.

You just saw the segment we did on Iran.

IVAN SEIDENBERG: Yes.

CHARLIE ROSE: And you remarked to me when you sat down, it is
stunning, the impact technology has had on this.

IVAN SEIDENBERG: Oh, there is no question. When you think of the use
of wireless technology and the ability of people to text each other and
draw strength from the communication that they have, it is a great thing.
And people will draw new information, break down barriers.

You know, for us as a network operator, it is the network effect. The
more people on a network, the more valuable the entire network becomes.
There is no question in my mind that that model will get repeated.

CHARLIE ROSE: What business are you in?

IVAN SEIDENBERG: I think our vision, the way we like to think about
it is that we like to provide people with the best communications
experiences. So we start out with the old phone wire, and now we do fiber
optics and we do things like wireless, and we connect people all over the
planet.

So we connect people. You know, much like FedEx connects two points
with a package, we connect people. And I think that’s kind of the way we
think about it.

And we happen to be a company that runs networks to connect those
people.

CHARLIE ROSE: Where will you be in 10 years?

IVAN SEIDENBERG: Well, hopefully the same model we have now will be
duplicated and expanded globally. Right now, we are 85, 90 percent U.S.-
based. In, I think, 10 years, we take this model and we expand it
globally.

I also think vertically, we add all sorts of new capabilities.
Remember the phone started out with phone calls, and it went to data calls,
faxes. And now it’s video. And so I think you will end up over the course
of the next 10 years with just the richness of interactive capabilities.

The good thing for us is our vision doesn’t change much. The
applications change a lot, but what we do has worn the test of time and we
are good with that.

CHARLIE ROSE: iPhone, AT&T. Now, will you have -- get the iPhone and
make a deal with Apple at some time? Is that going to be a reopened case
at some point when the AT&T contract runs out?

IVAN SEIDENBERG: Well, let’s address that quickly and then look at
the bigger picture. The decision to -- to put an iPhone, for example, on
our network is Apple’s.

CHARLIE ROSE: Right.

IVAN SEIDENBERG: Apple chose to make a device called the iPhone that
only works on the European standard, the global standard, called GSM. And
so -- and that was fine, and I think from Apple’s standpoint, it was the
right decision. GSM was a technology that was used mostly here and around
the world. It was the dominant technology, and Apple decided to scale
quickly. And to scale it quickly, they did a deal with AT&T, and AT&T
helped them scale it.

What we have always said is the iPhone has helped stimulate usage in
the category. So it has made Smartphones important, or more important, so
that’s why we have lots of devices now that do the same thing.

Now, in the longer term, as we move to the next generation of
technology, which you mentioned earlier, which is fourth-generation
technology, that will be a global standard. And then Apple will make its
own decision as to whether or not it wants to build a new chip for the
fourth generation.

CHARLIE ROSE: When will we move to the fourth generation?

IVAN SEIDENBERG: We are already in trial right now, and we are going
to launch commercially by late this year, early next year.

CHARLIE ROSE: So one phone will do everything you need in terms of
video and data and cell phones.

IVAN SEIDENBERG: One standard, one standard can be used for all
phones to be built to.

CHARLIE ROSE: Right.

IVAN SEIDENBERG: So you could build the all-purpose phone or you
could build 100 phones.

We have over 600 phones available in the U.S. from all the different
technologies. So customers may want one phone or they may want five
different phones, but it’s really a market decision.

CHARLIE ROSE: AT&T has a relationship with iPhone, or Apple has a
relationship with AT&T. Sprint has a relationship with a new Palm Pre.
There is a report that you have a new, soon-to-be-announced relationship
with Motorola, that Verizon and T-Mobile will have this new phone from
Motorola, which will use Google as well. Is that true?

IVAN SEIDENBERG: Well, I think what is true is all of us are
introducing new iconic devices, and that each time one of us does
something, it stimulates usage in the whole category.

Generally what happens is you have an exclusive relationship for one
or two years, and then the manufacturers decide to build those devices to
scale across all the systems. So what has happened in the last couple of
years is as each carrier focuses on what it thinks is a good niche, the
entire category grows. And so, it might be true what you said, I can’t
quite disclose what you -- what you just...

CHARLIE ROSE: What is interesting about it is, there is a
relationship between them, with the Android, between Verizon and Google,
and you have made in the past references to Google which were not exactly
friendly.

IVAN SEIDENBERG: Well, we have, there are two points to be made. So
the first one about -- here is a Verizon-specific comment. We have
invested a lot in our network. We think we have a high-quality business.
So over time, our view is, both customers and suppliers will want their
devices on our network. So even if someone starts with the other network,
in a reasonable period of time, we are pretty sure that the manufacturers
will want to build something to work on our business. That is kind of the
way we think about it.

Now, in Google’s case, it is a little bit of competitor-partnership
relationship. On one hand, what they do is terrific. They provide search
capability. They are expert at the Internet. So they create demand. The
more things they do well, the more people want to buy data services and the
more applications.

On the other side of the coin, they also like to provide services
that, in effect, sometimes compete with the things that we do. And so --
but net-net, they helped grow the pie a lot faster than anybody would have
thought until this point. So my view, net-net, they are on the right side
of most of the things that are important to us in terms of growing the
business. And the places where we compete, you know, we’re big boys,
they’re big boys. We will talk about it when we need to.

CHARLIE ROSE: Is there still a dilemma about access and net
neutrality, or is that an issue that has not come to head?

IVAN SEIDENBERG: Well, on net neutrality, we kind of have a little
bit of a split opinion in dealing with not just Google, but a lot of
companies like Google.

On the one hand, we happen to agree with the whole idea is that the
network should be open, the Internet should be available. So anything you
want to order from anyplace and download, you can do it. We are for the
whole idea of open standards for pulling down information. We don’t think
you should be blocking people’s information.

The other side of the coin where sometimes we get into a dialogue with
the Internet service providers like Google is they would like to keep those
who provide the network isolated from those who provide the applications
over it. Our view is you should be able to do both. They could do both,
we should be allowed to do both.

So on the issue of them sort of segmenting the industry and saying, we
are a network provider or a carrier, and, therefore, we can’t provide the
applications, we disagree with that.

CHARLIE ROSE: All right, speaking of applications. Everybody looks
at the iPhone today and says they have got hundreds, thousands of
applications. Palm Pre doesn’t have that many applications, nor does
BlackBerry have that many applications. Will all that change so that
everybody will have all the applications they want in a very short time?

IVAN SEIDENBERG: Yes. Yes, the answer is yes, and I will give you an
example of what we have just done. And again, this is -- I look at the
iPhone as having been a good thing for our business, simply because it has
gotten people familiar with and excited about what could happen. But to
me, the iPhone will blend in to the broader industry, and so here is what
we have done. With the movement toward 4G, we just signed a joint venture
partnership with Softbank, China Mobile and Vodafone, very bid providers.

CHARLIE ROSE: Vodafone owns a significant portion of your wireless,
don’t they, 45 percent?

IVAN SEIDENBERG: They are a partnership in our Verizon Wireless,
correct, but they also operate globally. And what we thought -- this
partnership will create a standard for applications developers to write
applications. So it will be a global standard. It will work on 4G, and
what will happen there is the closed system that Apple now has, they will
have to open it at some point. That is our view.

CHARLIE ROSE: Do they still talk about Moore’s law, or is there some
new means of measuring how fast the velocity of change in technology?

IVAN SEIDENBERG: Just from that perspective, Charlie, if you look at
when cellphones were first introduced 20 years ago, you had first-
generation technology. Each subsequent generation increased speeds by 30,
35 percent. Here we are at fourth-generation technology, and we are
talking about 10, 12 megabits on wireless, and in fiber...

CHARLIE ROSE: That’s stunning.

IVAN SEIDENBERG: ... we are talking 100 megabits. And so the people
who make chips and devices and consumer electronics and software, they are
having a ball, because they can’t envision not doing something they want to
do. So in the past, there used to be restrictions on what the capacity of
the networks can do. Today, I don’t think people feel that there isn’t
anything that -- if they can think of it, they can write a piece of
software for it. It’s spectacular.

CHARLIE ROSE: At what point did you go to your board and say, I have
a big idea. A big idea is that we are going to take fiber and lay it
everywhere we can, including into apartments and into homes and around this
country. And it is going to be a huge capital expenditure, more than $20
billion. When did you do that?

IVAN SEIDENBERG: Well...

CHARLIE ROSE: Or was it that way?

IVAN SEIDENBERG: I don’t think it was that rosy. I think I turned it
around the other way. I think in -- starting at around 2001, 2002, we
believed we had a big challenge in front of us, and the challenge was
pretty simple. That the capacity and the ability to grow our company was
limited by the technology base that we had. And we also had ferocious
competitors starting to form around the edges, who were going to take our
business.

CHARLIE ROSE: Like cable.

IVAN SEIDENBERG: Cable, absolutely. And a little bit of wireless in
those days.

CHARLIE ROSE: Right.

IVAN SEIDENBERG: Wireless wasn’t as mainstream as it is now, but it
was starting to...

CHARLIE ROSE: This was 2001 to?

IVAN SEIDENBERG: 2002.

CHARLIE ROSE: Right.

IVAN SEIDENBERG: So I gave our people credit for stepping up to the
plate and saying to me, and in turn we told the board, that we have a big
idea, but if we don’t do something different...

CHARLIE ROSE: We are going to be out of business.

IVAN SEIDENBERG: ... we are going to be in a lot of trouble. And we
are a company that -- we breathe the fact that we never want to go away.
It is not our goal to ever go away. And so we have always felt that we
must be at the leading edge of the next generation of activity. And fiber
optics was not a new idea. Everybody knew that if you had a piece of
fiberoptic...

CHARLIE ROSE: It was a big pipe.

IVAN SEIDENBERG: Yes, everybody understood that. So I think the
difference in our case is we stepped up to the plate, we pressed it out,
and we said this is the cost and this is the return, and I think we were
accountable for making a (INAUDIBLE)...

CHARLIE ROSE: And how have those numbers held up?

IVAN SEIDENBERG: We have exceeded them.

CHARLIE ROSE: And what is the goal?

IVAN SEIDENBERG: The goal?

CHARLIE ROSE: Yes.

IVAN SEIDENBERG: Well, the goal for us is to -- for that portion of
our company...

CHARLIE ROSE: Yes, FIOS.

IVAN SEIDENBERG: ... in which we had an all-landline business, we
want to cover 70 percent of that footprint with fiber optics.

CHARLIE ROSE: So, 70 percent of places where you had a phone line
when you were a local...

(CROSSTALK)

CHARLIE ROSE: ...you want to put fiber in there.

IVAN SEIDENBERG: Yes, the other 30 percent may be way out on Cape Cod
or way out on Long Island or somewhere up in the mountains...

CHARLIE ROSE: Where it’s cost-prohibitive to go there.

IVAN SEIDENBERG: At this point, it’s definitely cost-prohibitive.
But 70 percent of all the homes we pass will be eligible for FIOS. And
right now where we are deploying it, our penetration rates are really,
really very strong.

CHARLIE ROSE: As you know, there was some concern at the time that
you would not lay it in poorer neighborhoods.

IVAN SEIDENBERG: Well, that is not true. We have done it -- we have
been employing it equally and fairly every place, and we have great, great
penetration, and both in the inner city and in the suburban markets.

CHARLIE ROSE: Does this mean the triumph of distribution over
content?

IVAN SEIDENBERG: I don’t -- you know, there is always this battle
about...

CHARLIE ROSE: Between content and distribution.

IVAN SEIDENBERG: I don’t think the world is binary, by the way. I
don’t think so. It’s not that easy. But here is what I think -- the more
power we put in the networks, the more that the content people can create
very interesting content. And let’s use the classic example. You take MTV
or you take Nickelodeon or you take ESPN, they have done a great job at
creating the basic linear...

CHARLIE ROSE: And owning no hardware.

IVAN SEIDENBERG: Right. And they do that well, and then they also
create all these fun things. You know, ESPN 3, ESPN 4, ESPN 5, so who
knows where it is going. But the issue is, the customer will enjoy so many
different forums -- gaming, for example, Twittering on your TV set. I
mean, it is hilarious, the things that people are going to start doing on
it, and it is because of the power of the technology.

CHARLIE ROSE: How much of your budget is research and development?

IVAN SEIDENBERG: If you look at the capital we deploy, I think that’s
partly research and development. And then of course, all the manufacturers
that support us spend a lot of money on research and development. So if I
picked a number, say, 7 or 8 percent, I wouldn’t be wrong. It might be a
little higher, but it is certainly not a low number. I mean, we believe
deeply in the reinvestment in a business of coming up with the best
technology.

CHARLIE ROSE: So what is the global ambition?

IVAN SEIDENBERG: Well, I am not sure I am smart enough to know the
end answer, but I can give you the inputs that will lead to much more
expanded opportunity for the company in 20 years.

So what we want to have is a global network, IP-based which -- and IP
is a simple term, but IP lets you put information anywhere, on any server,
on any PC, and get it because it is marked correctly. It has got a little
packet name to it, OK, you understand that.

And so we want to have a global IP network. We want to be one of the
biggest carriers of Internet traffic on the planet. We want to serve any
business customer in any major city on the planet that we want, that we can
do it. We want to have at some point a global retail play in wireless, and
we want to have a very robust FIOS play in as many homes as we can. FIOS
requires more labor intensity, requires laying of fiber, so I think the
growth of FIOS will occur at a different pace than the others. But we
already have a big footprint which can get bigger, and the other two
footprints are limited only by the number of people on the earth.

CHARLIE ROSE: But you can’t imagine having FIOS being part of the
urban environment in countries around the world.

IVAN SEIDENBERG: Do you know that in India, they have an industrial
policy to put fiber to the buildings? So...

CHARLIE ROSE: Interesting, so...

IVAN SEIDENBERG: It is going to happen. It is going to happen.
Australia just said they want to create a fiber-based business across the -
- their continent.

So what I think is once people understand the power that comes with
all of this bandwidth and capability, everybody jumps on the bandwagon.

CHARLIE ROSE: Should we have an industrial policy like that? Would
you like to see the president of the United States tomorrow...

(CROSSTALK)

CHARLIE ROSE: ... Announce that he wants to -- you did.

IVAN SEIDENBERG: Yes, I did. I didn’t mean to. I think we already
have a policy.

CHARLIE ROSE: Do we? We have an IT policy?

IVAN SEIDENBERG: Well, it’s a better one...

CHARLIE ROSE: Or IP policy.