Online Extra: Creating a Verizon "Built to Last"

Looking ahead, CEO Ivan Seidenberg says telecom will morph into a broadband industry that will change a lot of things

A few years ago, many thought Verizon Communications (VZ ) would be overshadowed by upstarts such as WorldCom and Global Crossing. But those companies ended up in bankruptcy, and Verizon is the one making big bets on new technology. CEO Ivan Seidenberg talked about what comes next during a two-hour interview with BusinessWeek Telecom Editor Steve Rosenbush at Verizon's headquarters in New York. Here are edited excerpts from their conversation:

Q: How does one rise from cable splicer to CEO?


I didn't have any grand master plan. I tended to get my coaching from my parents. If you get up early and you work late and you do your job, the other things take care of themselves. That's what my dad did every day for 60 years -- got up early and worked late.

Q: What's your management approach?


You have to have a belief and be willing to strive toward a point of view. My own view is: You do your homework, know your facts, state your case, set your goals, take action, and you do it.

I want our people prepared. You need to be a team player, and you need to do it in the right way. In our culture, the more you know, the more honor you get. Generalists tend not to do well here. You want to be called an expert.

One thing that's very important to us is to make something that's built to last. We feel we have an opportunity to produce great returns for shareholders -- but not at the expense of employees and customers. It's very important to take the history and tradition of what we have been for 100 years and create something for the next 100 years.

Q: What lessons do you draw from the telecom meltdown?


One thing that's hugely important is government. Government is really, really not helpful. They had a point of view. It was to take the incumbents, cut them down, allocate their share to various competitors. But [rivals] couldn't get to scale, and it didn't work.

Q: How would you change policy?


What we should do is pretty simple: The Federal Communications Commission ought to focus on market-entry issues, consumer protection, and spectrum allocation -- and get out of the business of price controls and operational oversight. I don't think there are any examples of healthy industries where the government controls prices, particularly where you have such large capital formation and the technology changes every two years.

Q: Would that be fair, since many people hold the Bells responsible for driving smaller rivals out of business?


We think we complied with all the rules. The fact is, most of these companies had bad business models. They couldn't scale. The government thinks you can have 200 competitors in this industry. You just can't. You need lots of capital, infrastructure, network systems, operational support systems, and people.

Q: When will telecom recover?


Here's what I would say. As broadband becomes more pervasive over the next three or four years, all the, quote, excess capacity in long distance will get absorbed. If you go to Microsoft (MSFT ) or IBM (IBM ), they'll never say there's overcapacity. They would say they can envision a world in which you need more capacity to handle all the things they can make. The problem is we don't have the capacity in the right places. So we have got to get capacity in the last mile.

The [telecom] industry will morph into a broadband industry that will change a lot of things. The cable industry focuses on entertainment and games. The broadband industry will focus on education, health care, and financial services, and essential government services. I think over the next 5 to 10 years, you will see 5, 6, 7 vertical industry segments reordering the way they think about providing services.

Q: Can you really afford to invest in network upgrades, given the state of the market?


Our ability to generate [cash] is not an issue. It's really a question of balancing the need for shareholder return with how fast you can go. It's success-based. And if the economy picks up and starts growing 5% a year, we'll be able to invest more.

Q: Do you think the economy will cooperate?


It's got to. Whatever your opinion about tax cuts and all that stuff is, forget about it. The simple fact is that all the money that has been pumped into the market during the last two-and-a-half years has got to come out the other end some time. It's got to. The low interest rates. The tax cuts. It's there. It's going to happen.

At some point, businesses that are sitting on cash will start to spend. We'll see a sea change. One of the things about American industry that's pretty cool is that almost all the blue-chip companies have cleaned up their balance sheets. A lot of companies are poised for extraordinary success as the market picks up. But until the market changes, we have to hunker down and stay disciplined.

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