Telecom Finds Its Calling
In today’s brutally humbled telecommunications industry, it’s all about the basics. Upstarts with brash-talking executives are out. Conquering the world is out. And chief executives these days can forget about rapid expansion, frenzied acquisitions and highflying stock prices.
In times like these, it’s good to be Verizon Communications Inc. The New York company may be suffering from a multitude of setbacks, but it has steady cash from monthly phone bills, a dominant market position and enviable financial strength--all of which put Verizon a class above its troubled and bankrupt brethren.
Verizon is the nation’s largest local phone company, with copper wires stretching into one-third of U.S. households and into the headquarters of more than a third of Fortune 500 companies. Verizon Wireless, the company’s joint venture with Vodafone Group, has more than 29 million subscribers and is the nation’s largest wireless carrier.
Lately, Verizon has taken aim at the long-distance market, where it ranks fourth in size behind Sprint Corp. Once the company wins regulatory approval to sell long-distance service in a few more states, it is likely to move up to No. 3. Last week, Verizon teamed up with software giant Microsoft Corp. in a potentially lucrative effort to promote Microsoft’s MSN Internet service and high-speed Internet connections from Verizon.
At the company’s helm is President and CEO Ivan Seidenberg, 55, who helped build Verizon through a series of mergers that combined local phone companies Nynex Corp, Bell Atlantic Corp. and GTE Corp.
His company speaks loudly in the market, in Congress, in the courts and in the halls of the Federal Communications Commission. The man behind those moves is surprisingly low-key, even soft-spoken. In a recent interview, Seidenberg shared his views on the MSN deal, corporate trust, wireless consolidation, government regulation, expansion in California, cheap telecom assets and his plan to grow Verizon the old-fashioned way--carefully and gradually.
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Question: Why do you need a combination with MSN?
Answer: This deal offers an opportunity to accelerate [broadband] growth because what we bring is a network orientation and Internet service capabilities. What Microsoft brings is the extraordinary capability to develop software that can enhance the broadband experience. So I think we really do have a pretty simple case here where the two companies, if we both stick to what we do well, will bring a compelling product to the customer.
Q: What are your thoughts on the accounting and other corporate issues in the news now?
A: First of all, as a corporate executive, I think we have to take some responsibility for recognizing there has been a breach of the public trust, which is manifested in the way the market is treating everybody right now.
There’s got to be a little dose of improvements in corporate governance. Secondly, I think that the enforcement that exists within the law needs to be administered so that we’re not writing new rules and avoiding the most obvious thing to do, which is to enforce the ones we have.
Q: What about excessive executive compensation?
A: I think that in our case, we have to demonstrate that our pay is consistent with the delivery of value.
When we get to January and to the next round of executive compensation issues, I really believe you’ll see corporations step up to the plate and try to make proposals that put compensation more in line with where the market is.
We’re going to be creative and we’re going to be focused on making sure that we address the concerns. It’s pay, it’s accounting, it’s governance. Every day, a company has to get up and dedicate itself to executing to a high standard in a way that’s transparent. And you only rebuild trust over time. It doesn’t happen overnight.
Q: With all the telecom bankruptcies, there are a lot of assets--and some whole companies--available for pennies on the dollar. Is Verizon interested?
A: Getting distressed assets at a bargain-basement price, and having that business have no customers or revenue, or no plan for growth ... that is not helping. You get to say you have bigger reach, you have more inventory, but you have a bigger company with slower growth.
Q: Don’t you need overseas fiber-optic networks, like those available from KPNQwest or Global Crossing Ltd., to serve multinational corporations?
A: We view ourselves as a company that has a great big offensive and defensive line. We’re big. We average 300 pounds. We have a great running game. We can grind it out. We’re good on the fundamentals. So we want to take the business market we serve today, which is basically domestic U.S. customers, and really focus on exploiting our opportunities there, and then migrating up to the multinational companies.
What we don’t need to do is make a big splash and buy some company that gives us enormous dilution and then try to go after the high end of the market, when the high end of the market has the least market opportunity. So we’re not interested in buying KPNQwest or companies like Global Crossing.
Q: What about the North American part of Global Crossing?
A: That’s something we could look at. But I still think that they are too expensive. It’s worth very little. The way you have to value it is ‘What would it cost us to duplicate it or buy it in pieces or lease it from other players?’ That’s not to suggest there aren’t good assets and somebody else might not buy them. But whoever buys it, we can lease facilities from them.
Q: How do you expand your presence in California, where your largest territory is west of Los Angeles and the rest of the state is dominated by SBC Pacific Bell?
A: In the business market, we’ve used our Verizon access line base, which is in Southern California, and in the next 30 days or so, we will announce that we’ve completed the construction of a fiber ring into the business district in L.A. [SBC PacBell’s home turf]. We’ve done the same thing in Seattle, and we’ve done the same thing in Dallas. So we’ve started down the road of extending our network to cities in which we have a presence [nearby]. Our view is that we can use our presence to begin expanding in the business market out of franchise.
Q: What about broadband? You have strong views about regulation in that market, where you sell high-speed connections in competition with cable modem services.
A: We think government policy is not [incentivizing] the proper capital formation and therefore it’s slowing down [broadband] innovation. There is a sort of an imbalance in the rules coming out of Washington, between taking old technology and trying to regulate it, and trying to regulate new technology the way you regulated old technology. What we have is the government doing a straight-line extrapolation, [taking the] rules for analog and moving it to digital [broadband services], and that’s not helping anybody.
Q: On to wireless. What do you think about the expected consolidation among the big U.S. players?
A: You have to have a reason to consolidate. All of the pundits who are saying that what wireless needs to do is consolidate--that’s only half the problem. Consolidation will fix certain things. It will take away some of the inefficiencies. But it won’t help the innovation factor.
I think what the industry needs to do right now is straighten out the multiple technology platforms, focus on the compatibility of handsets and generate a lot of new products and services to get the industry growing again, and then if you have a little consolidation, that’s going to be very efficient.
I think consolidation’s in the cards ... but if all we did right now is go from six to four [national carriers], nothing is going to change.
