Key Executives

Ivan Seidenberg
National Governors Association Annual Conference
July 9, 2000

"Playing the Global Game: Communications in the Internet Era"

Thank you, Governor Leavitt [Introduction by Gov. Leavitt of Utah, NGA chairperson.]

It’s an honor to be here. The timing is great, because -- just last week -- we completed the merger of Bell Atlantic and GTE, creating that new household name, Verizon Communications.

We are now the eighth biggest employer in the United States, serving 33 M households in 40 states, 2/3s of the nation’s largest markets, and 96 of the top 100 wireless markets.

In the nearly two years we worked to put our new company together, we had the opportunity to speak to many of you about how the restructuring of our industry will affect your constituents and supercharge growth in the new economy.

I’d like to continue that dialogue today.

Let me begin where the information revolution begins: with the radical changes that are taking place in technology and customer demands.

This year, it’s estimated that almost 140 M Americans -- close to half the U.S. population -- will be on-line. Worldwide, the number is 300 M -- up a stupefying 80 percent in just the last year.

Eleven million households in this country will make their first on-line purchase, helping to fuel almost $40 B in electronic retail commerce.

Average time spent on-line in the U.S. will increase to more than 8 hours a week, in part because of the growth of high-capacity broadband access technologies like DSL and cable modems.

But even if you’re not "on the Net," you’re part of the Internet economy:

• A new report by the Commerce Department says that, without a doubt, information technology is now the #1 driver of the American economy.

• The same report says that, today, the information sector accounts for fully one-third of U.S. economic growth, despite being less than 10 percent of GNP.

• E-commerce is projected to be a $1.4 trillion business in just three years -- 85 percent of which will be business-to-business.

• In the communications business, data traffic has already surpassed voice traffic on our networks -- and, with data capacity doubling every 90 days as a result of new infrastructure investments, the lead is lengthening rapidly.

• This rapid technological change has driven computer prices down more than 25 percent in each of the last five years, and the cost of transmitting data is coming down at an even faster rate -- helping to lower inflation, raise productivity, and create millions of high-paying new jobs.

This technological revolution is changing the face of all the institutions in American life -- from education to medicine to entertainment to government itself. It’s also revolutionizing the communications business.

In the old paradigm -- when our business was predominantly "plain old telephone service" -- it was possible to address the needs of our customers as a local, regional company: the structure mandated by the prevailing regulated utility model.

But in the new paradigm -- the Internet world -- data and wireless technologies are driving growth, across the country, across the globe.

It’s reshaping industries, re-directing investments, re-writing business plans. It’s forcing us to become more global in our approach to growth.

If you look at the biggest telecom companies in the U.S. in 1995 -- just five years ago -- AT&T was on top, followed by all the former Bell companies, GTE and MCI. But if you look at the same metric for the year 2000:

• The biggest company is one we wouldn’t even have called a communications company five years ago -- AOL / Time Warner.

• The next four slots are taken by companies created by mergers, including Verizon.

• And the rest of the top players are made up of new entrants and cable companies.

Why is this happening?

Because every major player in communications -- Verizon included -- is racing to put together the national and global platforms over which we can provide new applications for integrated voice, data and video services to global, data-hungry customers.

And that’s good news for the American consumer, because it means we’re creating a new kind of company and a new, more vigorous form of competition. What you’re seeing is not the re-creation of some old monopolistic model, but rather the emergence of several vibrant national competitors, each fighting like hell to offer a full plate of services all across the country.

The result is more investment, more innovation and faster deployment of the technologies of the future.

In other words, competition in the United States is developing on the consumer’s terms, not the regulator’s terms.

Verizon is the result of a decade-long push on the part of Bell Atlantic to be part of the 21st century information industry.

We needed to look beyond functional and geographic boundaries to assemble the capabilities to serve the information-age customer: national scale, global reach, a full plate of services, and world-class networks. So, over the last few years, we’ve not only gotten bigger -- we’ve re-created ourselves as a totally different kind of company:

• We merged Bell Atlantic and NYNEX -- two of the original RBOCs -- resulting in increased investment and increased employment across all our jurisdictions;

• Formed a new national wireless company that, from its first day, was the premier wireless company in the U.S.;

• And -- most recently -- we merged Bell Atlantic and GTE to form Verizon, a truly national communications company.

The other thing we’ve done is push hard to open our local markets and get into long distance.

In December of last year, Bell Atlantic became the first RBOC to get long distance approval -- and, today, New York customers have more choice in local and long distance service than any other state in the country.

But it took almost four years to do it.

We are working vigorously in the rest of our states to learn from the New York experience, make the process even better, and open the local and long distance market across our entire footprint.

We’re pleased that the fruits of an open and competitive marketplace are beginning to be evident because, at Verizon, we firmly believe we can play a key role in bringing the benefits of communications to everybody. Obviously, we won’t serve every customer, but if we do our job well, everyone benefits.

We hope that we have broken the code on these issues that keep the U.S. communications industry from organizing itself around the mandates of technology and markets, rather than regulatory structures more appropriate to another era.

Because, frankly, from a public policy perspective, there are much bigger fish to fry.

I’d like to quickly mention three of the biggest policy issues surrounding the communications industry today.

The first is the issue of American leadership in a globalizing industry.

In recent weeks, there has been intense speculation about the possibility of cross-border acquisitions -- takeovers of American communications companies by telecom providers in France, Germany, England and the rest of the world, fueled by valuations of these foreign telecommunications companies that are much higher than those of American companies.

The reason for this imbalance is simple. It’s also ironic.

Investors rightly view the communications marketplace in America as more competitive than that of Europe.

But, while you’d think that more competition would mean less regulation, the opposite is actually the case -- U.S. companies operate under far more regulatory strictures than our foreign counterparts.

The result, from the capital market’s point of view, is a lower long-term growth outlook and a much riskier climate for investment -- meaning that the market is driving up the values of foreign telecom providers, to the disadvantage of American companies.

Just to make the point: at least one European state-owned telecom could afford to buy any one of the top five U.S. players, pay a substantial premium, and suffer no dilution in its stock price.

Now, as governors you may not care about stock prices, but you do care about attracting the investment that will fuel economic development and job creation. And therefore, it’s worth considering what public policies will have a positive impact on the flow of capital.

On that, the evidence is crystal clear: more competition, accompanied by less regulation. Anything less puts America in jeopardy of being a runner-up in the most vibrant sector of the global economy -- an unacceptable outcome for all of us.

A second issue has to do with Internet access.

More broadly, its about the mismatch between old regulations and new technologies.

Thousands of mid-sized and small American towns have no direct, affordable access to the Internet backbone. And most won’t likely get it any time soon. I’m talking about places like Wichita, Bakersfield, Sioux Falls, Shreveport -- hardly remote, out-of-the-way locales.

The fact is, less than one-tenth of the hubs deployed today are in rural areas. And the problem isn’t confined to rural America -- 60 percent of the country’s metropolitan areas have no access to an Internet hub.

The culprit: the unintended consequences of old regulation.

Telecom companies like Verizon -- which have arguably some of the strongest resources and expertise when it comes to competing in the Internet market -- are effectively prohibited from participating in Internet markets. That’s because the rules that condition our entry into the traditional long distance "voice" business also apply to Internet data traffic.

It’s ironic that the boundaries drawn up to break up AT&T in the early ‘80’s -- years before the Internet was commercially viable -- are serving today to determine who can participate.

As a growing number of federal and state lawmakers are beginning to understand, the Internet is too important to America’s economic vitality to be restricted by regulations leftover from another era.

That’s important to any community that wants its businesses and its citizens to be connected to the technology that's generating one-third of the growth of the U.S. economy.

And that’s important if we want to keep today’s high-productivity, low-inflation economy running.

We need a fresh approach to regulating new technologies -- one that doesn’t try to fit the new wine of the Internet into old regulatory bottles from the 1930’s.

As you know, Congress has given the FCC the discretion to adopt this kind of open competition policy for data. And the FCC itself has only recently proposed a restructuring plan that generally points in this direction.

The problem is, it’s a five-year plan. In the Internet world, we need a five-week plan.

Which brings me to the third issue: governing on Internet time.

I have a particular point of view on this subject because I’ve just been through a merger review process that took almost two years -- 23 months, in total -- to complete.

This was not because of any unforeseen objections or roadblocks raised to the deal along the way -- in fact, everybody performed their review in good faith and with reasonable efficiency. Rather, it’s because the process has far too many layers and is too cumbersome to keep up with changes in markets and technology.

So as I said a moment ago, we need to rethink our approach to regulating new technologies. The Congress could help by passing one of the several bills that would eliminate unneeded regulations on data investments.

And, having said all this, I believe industry itself has to step up to its responsibilities and address a whole new category of public interest concerns at the heart of the digital economy: issues such as privacy, slamming, cramming, protection of intellectual property, and filters to keep unwanted material from children without violating the First Amendment.

Obviously, there’s no such thing as a perfect market, and policy makers have a key role in making sure the rules of competition are followed and that markets are functioning efficiently.

But ultimately, we need to have faith in the discipline of competition and market forces to unleash innovation and create growth -- and the courage to be bold enough to try new approaches to governing dynamic markets.

Finally, I’d like to conclude by talking about something even more compelling than the Internet, something that’s key to our individual freedom, our democracy, and our free enterprise system.

I’m referring to literacy -- the gateway to full participation in the possibilities of the Internet age.

As all of you are painfully aware, there’s a severe literacy gap in America.

Forty million Americans have very low literacy skills -- so low that it’s a struggle for them to read to their children.

They can’t understand instructions on an appliance warranty or a prescription bottle.

They can’t find an intersection on a street map.

Equally disturbing is the fact that nearly 45 percent of those with the lowest literacy skills live in poverty.

Under the passionate leadership of its chairman, Chuck Lee, GTE has been a champion of the cause of literacy for many years, working with the leading literacy groups in the country to boost awareness and funding for the cause. GTE also pioneered a bill donation system that is perhaps the first of its kind, whereby telephone customers across the country can check-off a box on their phone bills and have $1 go each month to literacy organizations in their region.

Now, as Verizon Communications, we will be able to put our expanded scale and scope to use as a positive force in communities all across the country.

Verizon is committed to being America’s literacy champion.

We are developing something we’re calling the Verizon Literacy Network -- a web-based network that will link every literacy initiative in the country. We’ve earmarked $10 million from the Verizon Foundation to support literacy programs across the country. And we intend to unleash the volunteer power of our quarter of a million employees to make sure every child in America is introduced to the simple act of reading a book.

I mention all of these initiatives not to tout Verizon’s efforts, but to reach-out to you for partnerships.

There are terrific literacy programs in all 50 states. We want to participate and support your regional programs where it makes sense.

I believe we have the same goal: a nation of literate productive people who make strong employees, great leaders, informed customers, and good citizens. Literacy helps people develop the life skills and economic opportunities that can change their lives. And when literacy is improved, everybody wins.

We hear much discussion of the digital divide these days. But as the economist Lester Thurow points out, the digital divide isn’t about who’s rich or poor, black or white, urban or rural -- it’s about, in his words, "who plays the global game."

I agree. And that applies not just to companies, but to states, communities, and even individual citizens.

To the extent that either we at Verizon or you as governors hold on to old paradigms and turn a blind eye to the "global game," we delay the benefits of the information age to our citizens -- and, in the process, widen the inequalities between the "haves" and "have-nots."

But to the extent that we embrace the new paradigm and think of ourselves as part of the global communications marketplace, we will create new opportunities for growth, for innovation and for investment.

Technology and markets have already shown us what the communications business will look like:

Global. Data-centric. Competitive. Knowledge-based.

And the faster we get there, the better off we’ll be in terms of growth, innovation, and economic opportunity for all citizens.