Verizon Communications (VZ) Chief Executive Ivan Seidenberg faces the prospect of shelling out more than $10 billion in the coming years to build a TV service from scratch. But he's not showing any signs of trepidation.
The 39-year veteran of the largest U.S. telecommunications provider has seen the company move in and out of many businesses over the past few decades, and he says he's confident this massive project will overcome the tall hurdles it faces.
New York-based Verizon began selling its TV service, called FiOS, in Keller, Tex., last week and has plans to introduce the product in other parts of the country where it already sells phone service and Internet access. Before Verizon can do that, it needs to win franchise licenses from officials in hundreds of U.S. cities -- or persuade lawmakers and regulators to soften franchise requirements (see BW Online, 9/28/05, "Verizon's Muddy TV Picture").
To win the TV wars, Verizon must compete against entrenched cable and satellite operators, while at the same facing a a host of rivals, including fellow telecommunications companies and Internet-calling upstarts such as Vonage and Skype, which this month was bought by eBay (EBAY).
BusinessWeek editor Spencer E. Ante spoke with Seidenberg on Sept. 27 about the new markets Verizon is pursuing, from TV to high-speed wireless to services for large corporations through its planned acquisition of MCI (MCIP). Below are edited excerpts of their conversation:
What is your No. 1 priority?
The No. 1 focus of the company is to keep getting closer to the customer. We take very seriously this issue of bringing the company closer to the market. In the last 2 or 3 years, we worked hard at getting our customer focus correct. In my opinion, our company has never been better positioned with the customer.
What is Verizon's role in a world where Skype is killing the phone business?
Skype and eBay -- that experience will require a rich broadband connection. Our view is, yeah, we'll see revenue streams shift. Skype's business model has issues. eBay will probably correct it. But I don't view Skype as a big issue. The stand-alone VoIP (voice over Internet protocol) providers will eventually run out of gas. They don't see it that way, but we do.
They will need to do what Skype did and find an adult partner. It will cause us to shift the way we make money, but it doesn't change our fundamental place in the marketplace.[Companies that] put use of the IP technology over private networks -- that's real competition in the long term.
What do you worry about?
One is the customer. The other issue is we absolutely have an expectation gap to close between the customer and our investor. It's management stuff. It's our fault, and we've got to fix it.
We have allowed that to get out of balance for a lot of reasons. And we need to do something about that. The first issue is to accept responsibility. The market is always right, and the customer is always right.
What can you do to change the perception?
We can do things faster. It'll take a little bit more time. Once they see a little success they'll see that happen. I think we have this self-inflicted merger with MCI. We think it's the right thing to do.
I've been through this three or four times. The market has a perfectly legitimate right to question this and say: Is it going to work? Here we are, we've taken all the bullets and we're still here.
There are other things that Wall Street would have liked us to do. You buy back shares, you raise the dividend, you sell assets. We have always done these things. We didn't make that the strategy of the company. To some extent, we made execution of our investments the strategy of the company, and we took a little beating for it.
But if you look at the last five years, instead of the past one, our stock performance isn't different from our peers in the industry. I feel bad about it. I'm going to do something about it. But we're going to do it right. We always have come through.
How quickly can you get to scale in the TV market?
I measure it in the millions. We're talking about selling into video between half a million to three quarters of a million homes by early 2006. We're taking on big counties. We're looking at trying to cover 60% of our eligible market within five years. And we're already into the beginning of the second year.
What about the customer? What are you going to give the customer that will make them buy FiOS TV?
We're offering all the basic channels of cable at a lower price. And it has other capabilities that we don't think the current cable company in Keller, Tex., can quite offer -- we offer 20 HDTV channels. There's 293 channels. We can offer a richer package with more capability.
It's viral. Once people think there is a difference in the feel of it, they buy it. Skype is viral. This is viral. This is not like a technology that isn't tested. Fiber optics works.
How are you doing with the big challenge of winning franchises?
We have the ability to work the current system. But we are trying to change the system in states and the federal government. We're right on the merits. As the issue comes up for debate in a local community, they fold. We haven't run into a lot of places where people think it's a bad idea.
We're bringing competition to every market that we operate in for video. Who's going to turn that down? I think this all gets worked out. It's a lot of noise. There's give and take on both sides. They have an interest in doing it. We have an interest in doing it.
Most people still look at you as a phone company. But you're getting into all these new markets. What do you look like three to five years from now?
Our studies don't support what you say. Our name recognition is one of the top 10 brands in the country. We're not BellSouth.
People associate telecom with us, but less than a third of the people who know us think of us as a utility because of all the things we've done. Every survey says people think of us as the wireless company.
What is the timetable for rolling out a high capacity wireless broadband technology?
We have an EV-DO service that gives you 500 to 700 kilobits per second throughout, but where are all the applications, where are all the devices? The market is catching up. Our wireless EV-DO blows away all of things you can do today.
We need the next generation of software. But I don't want it to be, frankly, games and porn. That's what's happening in Europe. We need a lot of serious, rich, good content.