Progress and Freedom Foundation Aspen Conference

Richard J. Lynch
Aspen, CO
August 19, 2008

As delivered

Introduction by Ken Ferree, President of PFF.

Thanks, Ken, and good morning, everyone.

As I think about the question posed by the theme of this conference – has the key to innovation been misplaced? – I’m reminded of a saying we have at Verizon.  We used to say that the three things you grab before you leave the house are your cell phone, your wallet and your keys.  Pretty soon, all you’ll need is your phone.

The keys to innovation are right where they’ve been all along:  in the hands of the entrepreneurs in all sectors of the information economy, who are using technology to meet customers’ needs.  If that sounds like something an engineer would say, well, it is – and as an engineer whose roots in the communications industry stretch back some 35 years, I can tell you that, in my view, we are in one of the greatest periods of invention in our history. 

Over those 35 years, three multi-billion-dollar industries have emerged – wireless, broadband and cable.  Broadband speeds have doubled, on average, every 20 months, and they’re continuing to do so.  With every advance in network capacity come equally amazing advances in applications, services and equipment.  Every day, our customers find new ways to use technology to make their lives more convenient, productive and creative.  And with network investment in the United States having grown by 40 percent over the last four years, I’d say that, if anything, the innovation engine is speeding up.

My job at Verizon is to build the networks that will keep Verizon at the forefront of the innovation curve in communications.

So, today, I’d like to do three things:

• Tell you how we think about network technology,
  
  
• Give you a look at our technology roadmap and the applications and services our network innovations will make possible,
  
  
• And – since we have a lot of policy-makers in the audience – talk about the role of public policy in keeping the innovation engine running at maximum capacity.

To put it as simply as possible, Verizon believes in broadband …

• In the home,
• On the go,
• In the office,
• Around the world.

Customer demand for speed and mobility is the driving force in the market.  Whether it’s music, video, news, or voice, customers want their digital experiences to be delivered anytime, anywhere, and to whatever screen they have at hand.  And increasingly, our customers are moving from being passive consumers of information to active participants in the creative process, through social media and other two-way uses of broadband.

Meeting the needs of information-age customers – wherever they are, on whatever device and whatever network they’re connected to – requires physical and intellectual assets that only a handful of companies can muster.  Verizon is one of those companies.  Far from being a commodity or a “me-too” asset, our broadband networks are a source of competitive advantage and value-creation, and we have devoted many years’ worth of intellectual and financial capital to mould them to deliver a real differentiated experience to our customers. 

This commitment to innovation and investment in our core networks has been key to Verizon’s growth and has made us a leader in delivering the speed and capacity that today’s services require.   And as I’ll show you, we are now in the process of leapfrogging the current generation of technology to deploy the next-generation networks that will support our growth well into the 21st century.

Let me tell you what we’re doing in three areas:  wireless, fiber and converged services.

As you may know, I spent a lot of my career in wireless, and we saw, early on, that mobile customers wanted to do much more than just make phone calls.  So we were an early investor in CDMA, which gave us the capacity to move to an all-digital packet network.  We were the first company to deploy a national 3G wireless data network, using EV-DO technology, which has allowed our customers to very effectively download music, use GPS, share photos, and surf the web over their wireless phones.

This evolution from analog to 3G in the span of 20 years is like the auto industry going from a Model T to a Maserati in two decades.  Now we’re revving up the engine again.  Pretty soon, we won’t think in terms of a wireless “phone” at all.  The next generation of wireless broadband technology will be embedded into everything – from buildings to vehicles to consumer appliances to medical equipment – enabling them to be connected and communicating with one another constantly.  This “machine-to-machine” communication has tremendous potential in fields as diverse as health care monitoring, energy management, logistics and security.

Verizon is preparing to lead this next phase of growth:

• We recently purchased a common frequency block of nationwide 700 megahertz spectrum to give us a seamless national platform for a 4th-generation wireless network. 
  
  
• We are moving aggressively to put that spectrum to use.  We announced our choice of LTE, or Long-Term Evolution, as our 4G wireless technology.  LTE is expected to be the dominant global standard for 4G, which means seamless access for Verizon customers around the globe.  As global carriers coalesce around LTE, it is quickly becoming the pre-eminent standard for wide-area network communications for those emerging “smart” devices I talked about.  We are already engaged in multiple trials of LTE technology, in partnership with Vodafone, and are actively planning to deploy an overlay network that will co-exist with our current 3G platform.
  
  
• The final piece of the puzzle was to prepare our network for the coming explosion of smart devices and machine-to-machine communications. That’s the rationale behind our Open Development Initiative, in which we provide a mechanism for other providers to offer their products and services on the Verizon network.  Earlier this year, we held our first conference to share our technical specifications with developers and vendors.  Since then we have been certifying devices for use on our network.  In fact, I have to tell you that ODI was a logical move for us, as it has regularized for us something we have been doing without any public notoriety for years.

Our goal is to make our network the on-ramp for the next phase of wireless innovation.  To do that, we need to partner with the inventors and entrepreneurs who are creating these next-generation products and services.  With our investments in new spectrum, new technology and new operating models, Verizon is in a good position to lead the next phase of growth in wireless.

We’re pursuing a similar strategy with our landline network, where we’re positioning Verizon as one of the few last-mile providers capable of supporting the data throughput needs we see arising in the near future.

We began four years ago to deploy a network that takes fiber all the way to customers’ homes and businesses.  Today, this FiOS network passes nearly 12 million homes and we’re expanding at a rate of 3 million homes a year.   We are the leading provider of fiber-to-the-home networks in the U.S.

So what makes FiOS different from other broadband networks?

Today’s customers are looking for fast Internet connections and high-definition video.  FiOS can deliver both … but then, so can other technologies.  But as the Internet evolves from a text-based to a visual medium – and as 2-way interactive capabilities are embedded in every digital experience – we see a whole host of bandwidth-intensive services on the horizon:  from 3-D gaming, to high-definition social networks, to whole new applications for things like telework, medical imaging, distance learning, and more. 

To meet these demands and carry our company into the future, we needed a network that could transcend the physical limitations of copper.  For us, the only technology capable of delivering the flexibility and speeds we would need was an all-fiber solution.

Verizon’s FiOS network currently delivers download speeds of 50 megabits per second, with 100 megabit speeds in trial.  FiOS can also deliver equivalent upload speeds, which far surpasses what you get on a conventional asymmetrical system.  You will see us offer more very high speed symmetrical services as customers find them useful.  Because of the way the system is designed, a fiber node connects just 32 homes – about 75 percent fewer than the average cable system – meaning much more available bandwidth for the end user.  And, as demand grows, we can add even more capacity through the simple addition of new wavelengths on our existing fiber – giving us a dynamic system that can keep pace with the rapid innovation in this space. 

I’ve talked about what we’re doing to equip our wired and wireless networks for the 21st century.  The holy grail for our industry, though, is “convergence” – that is, the integration of all these networks and digital experiences, in ways that transcend technology and make the customer experience seamless and cohesive.

Increasingly, customers are demanding that content not be tied to a specific device or network, but rather be accessible to them anytime, anywhere they want.  Verizon is moving rapidly to address this market for converged services:

• In the large-business market, we provide a solution that allows customers to access their corporate directory, voice-mail, and other corporate communications functions from a Verizon Wireless phone – a virtual-office-on-the-go, if you will, in a single wireless handset.
  
  
• For multinational customers, we offer unified communications and collaboration services like VOIP and web-based videoconferencing that help them make the most of their IP networks.
  
  
• In the consumer world, it won’t be long before a customer can take an image with a digital camera, simultaneously upload it to a network storage site, email it to friends and post it on Facebook – all of which will be handled seamlessly by Verizon’s technologies.
  
  
• And in a first-of-its-kind solution, we recently announced that we will provide the State of West Virginia with a system that will link all of its existing public safety communications systems to a single IP-based service – providing the secure, seamless communications that first-responders so urgently require.

The true technical solution to the challenge of convergence comes as we make the move to IMS, or IP Multimedia Subsystems, which will provide the common control and protocols for applications to work across our networks.  We’ve been involved in the push for IMS since its inception.  In 2006, we drove an initiative called “Advances in IMS”, which was executed by a task force of companies, whose purpose was to catalyze closure on worldwide standards for IMS which would make its deployment pragmatic for operators.  I’m happy to say that we succeeded.  With IMS, the customer will no longer be stranded on separate islands of technology for things like messaging, voice, or video.  Instead, we’ll be able to build an application once and have the network deliver it to customers wherever they need it.

This shift to universally aware networks and universally available content will create growth for Verizon and the entire technology sector.  This growth will be driven by the real value customers will see in these new networks.

Of course, I wouldn’t be living up to my engineer’s oath if I didn’t conclude this discussion of technology by reminding us that we can build in all the bells and whistles you want, but if it’s not fundamentally reliable – or if it doesn’t deliver a high-quality customer experience – the customer won’t buy it.  As we move from the traditional telecom to an IP-centric communications model, we need to preserve the best of both worlds – the “five 9’s” reliability of telecom and the creativity of IP’s speed and flexibility.  This issue has been a passion for me.

I hope I’ve painted a picture of a marketplace where the interplay of customer demand and technological innovation is propelling us forward at an amazing speed.  To return to your original proposition - the keys to the innovation engine are firmly in place.  Having said that, let me spend a few minutes discussing the role of public policy in promoting innovation.

Now, I’m a technology guy, so I usually leave these sorts of things to the lawyers and the politicians.  But I’d like to offer some observations from my vantage point as the person responsible for managing billions of dollars’ worth of network investments.  Perhaps I can offer a different perspective on how public policy can affect – for good or ill – the technology infrastructure of the United States.

For most of my career in this industry, communications policy has centered on managing scarcity.  Going forward, I believe the focal point of policy needs to be promoting capacity.  The public interest can best be served by getting as much broadband in front of as many people, as quickly as possible, and ensuring that investment keeps up with demand.  To a large extent, this is a matter of taking down the barriers to investment and refraining from erecting new ones.  This means avoiding the over-taxation of innovation, such as we currently see to a disproportionate degree in the wireless industry.  It means removing entry barriers to facilitate investment, as New York City has recently done in granting us a franchise to bring FiOS TV to all its residents.  And it means forming partnerships and revamping the Universal Service Fund to bring broadband to rural communities. 

But most of all, it means a change in mind-set on the part of policy makers to acknowledge the realities of a 100-megabit world.

As a high-passion example, network management is a major public-policy concern.  As any telecom engineer will tell you, there has always been a requirement for network management, even back in the days of our old-fashioned, traditional landline voice networks.  Especially as different forms of traffic converge on a common IP network, the proper balance among costs, performance, and service quality depends on the traffic flow being optimized through proper network management techniques. 

We believe that network and applications providers can and must work together to find solutions that work for the industry and for our customers, and Verizon has taken a leadership role in doing just that.

Take the issue of peer-to-peer networking, for example.  With all of the video streaming and downloading going on today, about 60 percent of Internet traffic is conducted on a peer-to-peer basis.  Rather than fighting against this technology, we are focused on making these applications work better while reducing their impact on the network.  To that end, Verizon and Pando Networks cofounded the P4P Working Group in 2007, inside the Distributed Computing Industry Group.  This Working Group has brought together more than 60 ISPs, computer and content companies to work on the issue.  This has resulted in identifying techniques which, in field tests, have dramatically reduced network costs and congestion while noticeably improving the performance of the service to the customer.

This is a very exciting result that will yield major benefits across the industry.  We expect the techniques developed by our Working Group to be adopted as an Internet standard and that the concepts will be adopted by all major network and peer-to-peer providers.

This kind of technologically rational, pragmatic solution will help us to meet our commitment to delivering any and all data requested by our customers, while maintaining our high standards for quality and reliability.  More broadly, we think it offers a model of the kind of industry cooperation and collaboration that should be used to address the emerging challenges of the Internet industry. 

This isn’t to say that government doesn’t have a legitimate role in helping to define the public interest, establish principles, and adjudicate conflicts.  And it’s certainly of paramount interest to our industry that we respond to customers’ concerns about privacy, reliability, transparency, and fairness with the utmost of respect and care.

But I think we need to guard against turning technical and business decisions into political decisions.  Dynamic industries like ours require flexible solutions that can evolve and adapt to a changing environment – not rigid regulatory solutions that are one step behind the marketplace.

I said a minute ago that I usually leave these policy discussions to the lawyers.  But the more I think about it, frankly, it might not be a bad idea to let the engineers get in on the act.  After all:

• We like solving problems.
• We like making decisions based on facts.
• We like cool new stuff – but only if it works.
• And we know that invention is one thing … putting invention to work for people is another.

That’s the power of innovation.  It’s what engineers come to work to do every day.  If we focus on using our technology to address the things that people care about, deliver real benefits, and solve real problems, there will be no end to the fantastic things broadband can do for our society.

Thank you, and now I’d be glad to take your questions.

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