Commonwealth of Virginia Information Technology Symposium (COVITS)

Ivan Seidenberg
Commonwealth of Virginia Information Technology Symposium (COVITS)
September 22, 2003

[Introduction by John DeRenzo, Vice President, Bearing Point.]

Thank you, John, and good morning, everyone. I'd like to commend Secretary Newstrom [George Newstrom, VA Secretary of Technology] for assembling such an impressive line-up and, even moreso, for taking the lead in turning Virginia into a laboratory for innovation in digital services. Thanks to the vision of Secretary Newstrom and Governor Warner, Virginia has been named, of all the fifty states:

• Number one in e-commerce,

• Number one in digital services, and

• Number one on the Web.

Like your website says, Virginia citizens now spend a whole lot more time on line than they do in line.

Verizon is proud of the tradition of technology innovation and ingenuity that is driving Virginia's economy and transforming your government. Over the years, we've invested more than $10 B in networks in Virginia, much of it to bring new broadband and wireless technologies to the millions of customers we serve throughout the state. As Governor Warner and Secretary Newstrom know, having a modern telecommunications infrastructure is a prerequisite for the growth of technology-based businesses -- here in the Commonwealth and in the U.S. as a whole.

But information technology is much more than "table stakes" for success in this new economy. We believe that information technology -- widely deployed and imaginatively applied -- has the power to accelerate business change and transform society.

It's fashionable these days to say, in the words of that notorious Harvard Business Review article, that "IT doesn't matter" and that the information revolution, telecom included, has run out of gas.

At Verizon, we believe it's just getting started.

As a communications service provider, we play a special role in delivering the practical power of innovation to the marketplace, and we're devoting the strength of all our resources to do just that. In fact, there's plenty of evidence that 2003 is an important turning point on the road to a digital society:

• We now have more than 30 million customers in this country for first-generation broadband services like DSL and cable modems -- 50 percent growth over last year, even in a tough economy. We're no South Korea (who ever thought we'd be saying that sentence?) but we're making progress.

• It's been a breakthrough year for wireless data -- up over 50 percent in the last year - which has fueled a new cycle of growth and innovation in this industry, despite all the predictions to the contrary.

• Disruptive technologies like Wi-Fi and voice-over-IP are starting to gain traction and challenge conventional notions about industry structure and competition.

• And a whole new generation of web-enabled operating systems and applications -- offered by Verizon and by others -- is in the starting blocks, which will help knit all these platforms together for customers.

The truth is, every time someone predicts the demise of the technology revolution, something comes along to re-energize the market and re-excite the imagination -- and Verizon is reinventing our networks, products, and culture around these opportunities to the tune of $12 B a year:

• Deploying fast, secure 3-G technology to deliver broadband speeds to wireless customers,

• Extending DSL to 80 percent of our customers by the end of the year,

• Using Wi-Fi and other wireless technologies to extend the reach of high-speed services,

• Redesigning our network around IP "softswitches" and other packet technologies that will make possible all kinds of new software-enabled services and applications,

• And, most recently, making a major commitment to fiber in the last mile, which will deliver broadband speeds that are 20 times faster than what we can deliver today.

At Verizon, we're huge believers in technology, and we continue to put our capital investment behind that belief. We've made tremendous progress toward our vision of an integrated, multimegabit network that will incorporate multiple technologies and support the whole range of industry-transforming, life-changing applications envisioned by all the people in this room.

The benefits of this commitment stretch far beyond Verizon, or even the customers we serve.

For every dollar we invest, we create another $3 in economic activity, helping to support the huge array of businesses and institutions -- in health care, financial services, software, education, high-tech, and government -- that rely on a robust communications infrastructure.

Put another way, every $100 M we invest equates to 700 jobs in the economy as a whole.

That's a pretty startling number when you consider that the U.S. is just beginning to pull out of the longest technology downturn in its history -- a slump that has hit the telecom manufacturing sector with particular force. A half a million jobs have been lost in IT and telecom since 2000, with an astonishing 75 percent lay-off rate in America's fiber-optic manufacturing plants. America's leadership in this crucial 21st century technology is in danger, as capital -- and, with it, the capacity to innovate -- moves overseas.

It's clear that an increase in investment by companies like Verizon can have a huge, positive impact on the American economy -- if we can get rid of some of the "do not enter" signs that are keeping billions in investment capital idling on the sidelines.

Of course, as Andy Grove once said, technology can't be stopped, but it can be delayed. Unfortunately, that's precisely what's happening in the telecom sector of the IT industry.

Why is it that wireless and cable continue to grow at double-digit rates, while telecom is contracting by 4 percent a year? It's certainly not for lack of demand, lack of opportunity, or lack of will. The answer, I would argue, is an industry structure that throws up barriers to innovation and creates a hostile climate for investment, especially for the big, capital-intensive players who account for almost 80 percent of the investment in communications networks.

The result is that -- for totally artificial reasons -- telecom has become de-coupled from the economy as a whole, preventing us from being the engine for jobs and high-tech growth that we could be.

Infrastructure is big business, with immense capital requirements. In IT, scale creates investment capacity, which creates competition. Unfortunately, government policy has it the other way around. Policies based on meting out spectrum or doling out market share to under-capitalized new entrants in the name of "competition" are actually doing the opposite by handicapping the big players and preventing the flow of capital and technology to market opportunities.

Larry Ellison of Oracle says in this week's Business Week that IT "is a consolidating industry, and in a consolidating industry, you need scale to compete." The same is true in telecom. We need to provide incentives for the competitors with the financial muscle and national scope to invest in infrastructure and provide the IP-based platforms on which the digital future will ride.

And for that, we need clarity and certainty - two things that are woefully lacking in today's regulatory environment.

The latest example of this regulatory uncertainty is the FCC's recent rules on telecom regulation, which we view as a missed opportunity of huge proportions. Since it weighed in at close to 600 pages, I'll spare you a blow-by-blow account of its shortcomings and confine myself to two observations:

• First, any set of rules that takes more than a year to write and weighs more than an encyclopedia is probably ill-suited -- by definition -- to an industry with technology that changes as fast as telecom's.

• Second, it seems to me that, by layering complexity on top of complexity in its interpretation of the rules governing our industry -- (we're still not sure what some of it means, and we've been at this for a while) -- the government is ignoring the evidence in the marketplace of how competition occurs in real technology businesses.

When customers, rather than the government, are able to dictate investment choices, innovation and competition invariably follow.

Look at what happened in the Enterprise market when Verizon was finally allowed to offer long distance services. Once we were released from the artificial confines of "local" service, we could begin to really serve our Enterprise customers with integrated services, national networks, more advanced technology and a more complete portfolio of products. The result is more competition in the Enterprise market and the creation of another strong, stable, integrated supplier in this marketplace.

Or take wireless, for example. To be sure, wireless has its own regulatory issues -- the micromanagement of spectrum, for one -- but it's no accident that innovation is happening at a faster pace in the wireless world than in telecom. Wireless operates like a real business. No price controls. No entry barriers. And no restrictions on our ability to make investment decisions based on what our customers want, rather than what the government tells us.

And what have Verizon Wireless customers gotten in return for our freedom to act like a real business?

The best network in the country. Nationwide coverage. More value for less money. Early, aggressive investment in CDMA technology, which is evolving rapidly to broadband. And a raft of innovations - camera phones, text messaging, push-to-talk, downloadable applications, and more -- that benefit not just us, but the hardware and applications developers who use our network to reach the market.

Not a bad model for how an infrastructure business should work. And one we're prepared to replicate in the wireline business with a massive investment in fiber, which will do for the landline network what our early investment in CDMA did for wireless.

We're ready to do our part to put telecom back on the path to growth. But we also need state and federal regulators to step up to the plate and face the music that the current rules and regulations don't work. How many job losses, bankruptcies, scandals and missed opportunities do we need to have to make the point?

If government can get out of they way and see the world from the customer's point of view, I believe they will see that the long-term vital signs of our industry are strong and healthy.

Data and high-speed access are still growing at double-digit rates. Services like applications hosting, unified messaging, disaster recovery and network security are growing at 20 percent a year. We're seeing good momentum in growth markets like DSL and, of course, wireless.

And as anyone in the IT industry knows, that's just the beginning.

If we put customer needs at the center of the conversation about technology, there's no end to the economic and social benefits that will ensue.

Of course, it means solving the persistent incompatibility of protocols and standards that put up walls between technologies.

It means making the technology that customers already have work better through operating systems that work across different platforms.

It means ensuring the privacy of information systems and providing the diversity of technologies that is the best guarantee of network security.

It means making new products and services fun and intuitive and operable by people without degrees from M.I.T.

And it means growing our markets by extending the technology revolution to a new customer base -- the key to which is the development of compelling, new digital content that pulls new users into the world of the telecosm.

It's painful to say, but the U.S. has fallen behind several of its global counterparts -- particularly those in Asia - in content innovation. It's doubly painful because the opportunities are so immense. In the enterprise world, for example, telemedicine has tremendous potential for transforming health care, which lags far behind the rest of industry in its use of information technology. The same is true in education and government services.

And on the consumer side, there are huge opportunities in entertainment, music, home networking and voice recognition that will make Internet-based services as ubiquitous as television is today -- and might even benefit society in the bargain.

So how will we know that telecom is back on the glide path to growth?

When capital investment begins to flow to market opportunities.

When the pace of technology innovation begins to accelerate.

When new products and services begin to flood the marketplace.

When IT once again becomes a transformational agent of business change.

Meanwhile, Verizon will continue to do our part to deliver the best networks, the best products, and the best service possible to our customers. We're proud of our record of investment and our history of service. We've worked hard to transform our networks, our culture, and our mind-set to compete and win in the IT marketplace. And we're tremendously excited by the opportunities that lie ahead.

Thanks, and I look forward to your questions.