ALAN MURRAY: Thank you, whoever helpfully banged their glass.
Welcome to today's Council on Foreign Relations meeting, part of the CEO Speakers series. Everybody please turn off -- well, two requests. One, Ivan requests that your service provider be Verizon -- (laughter) -- and second, I request that whatever it is, you turn it off.
IVAN SEIDENBERG: No, you can leave it on as far as I'm concerned. (Laughter.)
MURRAY: And second, remind everyone that this session is completely off-the-record (sic\on-the-record), although I think you've been around long enough to know that with this many people in a room -- (laughter) --
SEIDENBERG: We'll just lock the door and you can't leave, that's all. (Laughter.)
MURRAY: I think Ivan Seidenberg needs no introduction. He has been CEO of Verizon for as long as there has been a Verizon, and has also become increasingly involved in the Business Roundtable -- you're now the head of the Business Roundtable, so a lot to talk about this morning.
But you've been in the telecommunications business for more than four decades. You started as a cable splicer?
SEIDENBERG: Mm hmm. (In affirmation.)
MURRAY: What's a cable splicer?
SEIDENBERG: What's a cable splicer? Well, it's a guy who splices cables, right -- (laughter). So you know those wires you see. You connect them. And so that's what I did. I just connect wires.
MURRAY: And those were in the days of Ma Bell; government-controlled monopoly business could not have imagined, I would think, how much your business would have changed over those four decades.
SEIDENBERG: Yeah, well just to -- if this is "nostalgia minute," you know --
MURRAY: A minute, yeah.
SEIDENBERG: -- a minute. So, yeah, in 1966 the world was a lot different, hen I started. But the concept was different: We had to connect traffic from point A to point B. And the way we did it was copper wires. And we had this elaborate network of switches, and wires and poles and things of that nature. And we still have elaborate networks of switches, but now they're fiber optics or they're wireless, and now they're silicon and things of that nature.
So, you know, we're a business that's -- (the disruption ?) in technology is enormous. But what we do hasn't changed much in the last 50 years -- what we do --
MURRAY: Well, you're not -- you're, what, 30 percent of your business now is data instead of voice, right?
SEIDENBERG: Yeah, but the services we offer are different. If you look at our business -- just as an interesting tidbit, so we're a $110 billion company, and probably 80 billion (dollars) of that 110 (billion dollars) we've generated in the last 10 years. So we're a business that almost everything we did before has been made obsolescent by technology. And so we're constantly having to regenerate new products and services, even though the core technology, to most people, appears to be the same; but the services we offer constantly changes.
MURRAY: So this whole Net neutrality debate that's been going on in Washington for the last few years, it seems like some of the people involved in that debate still think of you as what you were -- sort of the "dumb pipes," and the technology happens on the people who are providing applications to go over your pipes.
SEIDENBERG: Yeah, I think I would come at that a little differently. I don't think the people are that naive. I think people who are -- who fashioned this Net neutrality argument did it for competitive reasons, not because they were not aware of the nature. So let's take the example -- and the Net neutrality issue has sort of evolved in the last three or four years, but when the debate first started, the leader of the pack was Google, and basically Silicon Valley.
So if you look at Silicon Valley, they're view was anything that Verizon, or AT&T, or any of the carriers did was an encroachment on the software business. So the best thing is to come up with a strategy that defines "network" and segments it away from software, and therefore you create a whole argument around Net neutrality. What we know is that the technology is not that easy to separate. Things are more integrated.
And so where we are today with the debate is, you see Verizon now has -- I have filed two or three joint editorial letters with Eric Schmidt, and we see now an evolution of this, where people recognize that you can't regulate technology. What you have to do is regulate an industry. And the industry requires players to participate in all parts of the value-chain in different ways.
MURRAY: So you're not worried about the Net neutrality argument anymore.
SEIDENBERG: Well, I always worry about -- I always worry about unintended consequences of government reaching into our business. But I believe the players in the industry -- like Google, like Microsoft, like the Silicon Valley players, as well as AT&T, and us and the rest of the industry -- we're creating a better dialogue. So the FCC is looking at a more, I think, reasonable positions than these polar positions.
So let's set aside all the lobbyists on either side and assume they're on the polar conditions. And so what you're looking at today is, industry -- and let me get to the answer, industry is focused more on more self policing than strict rules to govern every single behavior. An example of that: Advertising industry has self policing. And they don't do a bad job. And once in awhile, if it doesn't work, somebody takes you to court.
But in the telecom business we need industry to do a better job at policing behavior, because, in the final analysis, government could never possibly regulate every condition, in every single circumstance that could ever happen, and do it efficiently.
MURRAY: So you've got that big fat FCC "Connecting America," the National Broadband Plan in front of you. You carry that everywhere you go?
SEIDENBERG: I do. (Laughter.) I wanted this -- I wanted this audience to see this document.
So the FCC just released their National Broadband Plan, okay. So, you know, there's always a lot of good things in here, but when you think of the reach that this document has. So, for example -- I mean, I just took some of my favorite recommendations, you know, so the FCC is now going to suggest that they decide how many hours a day local community centers should be open for people to get Internet access. They're even going as far as saying maybe we should talk about off-hours, and how many hours a community center should be --
MURRAY: But they have no power to do anything about that.
SEIDENBERG: They could try. And they can impose costs on people.
So here's the issue. The issue is we have to be careful that well-intentioned, high-level policy issues don't turn into burdensome rules and regulations that will just stifle growth and innovation. I mean, that -- this is a simple issue for me.
MURRAY: But is --
SEIDENBERG: And this document is -- in one way, it's fine; in another way, it's extremely -- gets my attention, right.
MURRAY: Do you fear that that's going to stifle your ability to make the investments you need to make to build up --
SEIDENBERG: I fear that when industry -- not just us, but any company makes capital allocations decisions, if we start out with 2, 3, 4 billion dollars worth of government mandates that really don't have any reality in how the market works, I worry about that, because that just adds costs, it reduces our incentive to invest in this country, and it affects hiring, and you know all the other things that go with that.
So I am concerned that there's an overreach here. But it's early in the game. But the point is, I think, you know, intelligent, engaged opinion leaders just need to understand that this is not a slam-dunk -- that Net neutrality is right, and, therefore, we need to just cave in to everything the FCC thinks is, wants to do.
MURRAY: So I'm going to come back to that in a little bit.
I should tell you that I was handed a note. I misread my notes here. This meeting is actually an on-the-record meeting, not an off-the-record meeting. So, is there anything you said in the last few minutes that you --
SEIDENBERG: No, no, no. I was hoping it was on the record, actually.
MURRAY: It is. It's on the record. And I'll turn my tape recorder on and we can -- we can move on.
SEIDENBERG: I didn't think everybody in this room was going to keep the secret anyway. (Laughter.)
MURRAY: But I want to talk first -- you've made the point that Verizon really is very much a technology company. You've kind of cast your lot with Google in the great "Google versus Apple" war. You have the Android phone; AT&T has the iPhone. I realize it's just the early stages and a lot's going to happen from here on out, but are you on the right side of that battle?
SEIDENBERG: (Laughter.) Well, so far, if you look at the results, I would think you would say we're doing okay.
But here's the way I would look at that. I think we're on the right side of the network argument, as opposed to Google or -- right now, the hand we were dealt is to develop our business. So let's -- let me just clarify this real quickly. So Verizon runs its wireless business on a technology standard that -- it's called CDMA, so it's a different standard than the one that AT&T runs, GSM. So Apple decided to build its first device on the GSM standard because that's a more accepted global standard.
I mean, our view, over time, is that as the devices come to a common architecture, we would be eligible for Apple to consider putting their devices on our network. It's their shot, their call. We're open to doing it.
So to get to your question about who we sided with, our view is that the networks should be neutral to anybody's device, and we want to carry anybody's device. And so what we're doing now is: We have plans to carry the Google Android; we're carrying the Microsoft Windows -- Nokia and Siemens are developing another standard; and eventually our view is we'll get to carry the Apple standard when Apple's ready to make that decision.
MURRAY: Do you have any idea when that'll be?
SEIDENBERG: No, but you know the newspapers -- The Journal reported that, you know, that Apple is looking at that. All I could say about that is that -- (laughs) -- we have expressed to Apple an interest in doing it; we have explained that our network is capable of handling it. But those of you who read about Apple -- a great company, they operate on their own frequency. They do what --
SEIDENBERG: -- they want, when they do it. (Laughter.)
But, on balance, they're good for the industry. They create -- if you don't mind, I'll just -- let me extend to the iPad --
MURRAY: Yeah, sure --
SEIDENBERG: -- just to give you a -- (inaudible) -- everybody's familiar with this. So, like everybody else, you know, we're interested in it. So we had our -- some of our technology people go out and buy a couple of devices --
MURRAY: You didn't stand in line on Saturday?
SEIDENBERG: No, I had somebody else stand in line. (Laughter.) But we had people standing in line.
But here's the thing about the iPad that's very interesting. So we look at it as a fourth screen. So you got your TV; you got your mobile device, right; you got your PC; and now you got a fourth screen. So it's not clear that those four could become three, or those four could become five, but at this point it's another screen in the marketplace.
Now, the interesting thing about the iPad, from how Verizon looks at it-- from a network person, first of all, it has no hard drive, right. It's got flash memory. So that doesn't mean anything to you, but it means a lot. It means they can produce a lower-cost device for the technology they put in, and the battery will last longer.
But it also means that all of the downloading will come from the cloud. So all this business about edge devices -- putting expensive hardware on edge devices, now it gets turned on its head a little bit. So what you have is -- so this device will be great for media, and it's in a -- it's a video-intensive experience. The intention of the iPad is to push a lot of video onto that device. So it has no hard drive.
Now the other thing is it's geared for unicasting. So what does that mean? So, as Gus would know, when you broadcast cable, we send one signal out to everybody in the room at the same time. When you do a unicast, each of us could watch the same program three seconds apart. That means you need 125 different videostreams going out into the network at one time.
So that means, for a network person like us, Internet capacity is going to just explode.
SEIDENBERG: Yeah, it's like it's --
MURRAY: I mean, what --
SEIDENBERG: Guys like me love this -- (laughter) -- you know, more networks, you know, more fiber, more capacity. And so --
MURRAY: But there's massive investment on your part.
SEIDENBERG: Well, yes, but there's also the advances in technology -- you'll keep getting more mileage out of the same fiber. I mean, our view is that piece of fiber we put out there will carry unlimited capacity. All you have to do is get smarter electronics and you keep doing digital compression.
So our view is the investments we (make) now will last forever; and all these smart people will continue to invest in digital compression technologies -- Moore's law, kind of a thing; and keep getting more bandwidth out of the fiber.
MURRAY: The big bandwidth hog is video --
SEIDENBERG: True. The way we see it -- getting back to your first question, if you look at our old business, which was making phone calls, if we look out into the future, we think that 90 percent of the demand we're going to face is all out in front of us. So you think of all of the information you all transmit back and forth, that's only 10 percent of what we think will happen in the next 10 years. It's just absolutely awesome, you know.
MURRAY: And what does that mean in terms of your investment, the way you have to plan? You have a level of investment, unlike most --
SEIDENBERG: Yeah, well --
MURRAY: -- any other company.
SEIDENBERG: -- the way we see it -- the way we see it is we make some big investments up front, which will then ride for 10 or 20 years, because that fiber we put out there will end up increasing its capabilities two, three, four, 15 times. We're doing that will 4G and Wireless -- we're putting in the next generation of Wireless.
So we have investors in the group. You know, they worry that we're spending a lot of money up front. Our view is everybody's going to have to do what we're doing -- guaranteed. But we're going to have done it sooner, earlier.
And I think it proves today, if you look at our company -- particularly our wireless business, our network service and our network quality is pretty good. And I think that it's only because we invested -- and we invested, and we have people that run it. So I think, in the future, everyone will sort of catch up.
MURRAY: You're investing in wireless at the same time you're putting fiber optic cables into people's homes. Do you have to do both, or is one going to end up as the preferred method for --
SEIDENBERG: Well, let's look at it -- we have three businesses now, so let's look at the three: So one is, it's a wireless business, which you all understand. Then we have in Internet backbone business -- which is global, we're in 128 cities; if you read the materials we sent out to members, you can see we're pretty big in that, so we want to make sure we do that. And then we have a third business, which is this local-access business, which is FiOS to the home.
So, yeah, we think that the first two are more national or global; the FiOS to the home is -- think about it, we serve 18-20 million households from Boston down to Washington. It's a pretty good market. So why wouldn't you, sort of, put fiber into that?
And our view is, once we put that fiber out, we're kind of good for 20 years. And all we'll have to do is upgrade electronics and the switches every once in awhile, or put a new set-top box in your house, or maybe eliminate four set-top boxes and have one set-top box in your house, but the fiber will last for a long time.
MURRAY: In wireless, you're in business with Vodafone. Would you like to get out of that?
SEIDENBERG: You know, in the long term -- minority interests, partners in your business, you'd probably like to resolve that. So the answer is, yes, I would like to resolve that at some point.
MURRAY: Can you define the "long term" for us?
SEIDENBERG: Well, it's been 11 years so far. So --
MURRAY: Long enough?
SEIDENBERG: Well, you know, the (laughs) -- (laughter) -- the Constitution has lasted 200 years, so -- (laughter.)
I think what's important about Vodafone, on this discussion, is they're a wireless company; they do a very good job; they've been a partner in our business. We have an excellent operating partnership. They have never, ever gotten in the way of us wanting a good business.
The fact is, at some point either they will get -- decide that they don't want to be a minority partner anymore, or circumstances will change. But the issue is this -- you know, there's always this intrigue written about this. There's really no pressure on either side to do anything much different.
MURRAY: Does it make sense to merge?
SEIDENBERG: Well, that's a fair question, I get this a lot. So the way I would, sort of, think about it is we think that this notion of a global, wireless-only carrier -- which is what Vodafone is. It's no longer the preferred model. So I think what you're watching the world sort of "migrate into," in our business, is integrated companies. AT&T is an integrated business -- it's got wired and wireless; Telefonica's got wired and wireless; Orange, wired and wireless.
So I think what you're finding is, if you want to be just wireless, you, in my opinion, at some point, will lose economies of scale. So therefore, when you think of a merger -- I'm not saying it's not possible, but the economics are different when you think of economies of scale and growth.
And the other issue is, you put companies like us together -- it's almost a $200 billion business, you have to show investors that you have higher growth than you would standing alone. So it's a harder issue the bigger you get. So theoretically, you can do anything, but there's no compelling, at this point -- there's no compelling reason for investors to think this is an exciting thing to do.
The press loves this subject. Investors call me less than the press does on this. (Laughter.)
MURRAY: (Laughs.) All right, I'll drop it --
SEIDENBERG: Just for what it's worth.
MURRAY: -- I'll drop it --
SEIDENBERG: I'm trying to help you -- (laughter) --
MURRAY: (Laughs.) Yeah, thank you. Okay, we'll move on.
So you circulated comments to this group, in advance, in which you talked about how this rapid build-out of the Internet you're talking about can address the most pressing social problems that society faces, whether it's poverty -- I thought I was back in 1999. I mean, you were talking about education, poverty, health care, energy.
Can we talk about that a little bit? I mean, go through -- maybe take them one by one, education as a starter?
SEIDENBERG: Well, look, I think our company -- I appreciate the question. And also I'd like to thank Richard Haass for inviting us here, and let me just thank you for being here. It's quite an honor that you would -- you would do the interviewing.
But the way we view our business, we love what we do. We think what we do matters. And so when you think about our technology -- so the PC, we thought, would change the world, all right. So for whatever reason, the capabilities that one could get from the PC didn't quite crack the impediments to, sort of, "social growth" that occurred in the classroom, or in terms of how people learn. So no matter how hard we worked, we didn't get PCs to every classroom; we didn't get them to every student.
But we have a chance to get mobile devices to a lot of people. So there are four billion people in the world now with a cellular device, which is sort of unheard of, when you think about it, from where we started. The next billion or so people to be connected to the Internet will all be connected by wireless. So I think we have a chance to crack the institutional roadblocks, particularly in education and health care, to get information into people's hands, where they will change the world. So I think --
MURRAY: I mean, but part of the --
SEIDENBERG: -- so therefore, people can learn -- people can learn differently; you can have teaching 24 by 7; people can download stuff. I mean, there's so many different ways that the learning process changes by having a mobile device.
MURRAY: But have you been -- in both those areas, the rate at which technology has infiltrated seems to be extraordinarily slow. I mean, education today -- K through 12 in this country, isn't that different than it was 30 years ago.
SEIDENBERG: Well, let me give you one example -- so just one example, one company: So we have a website that we work with. It's called Thinkfinity. So it's our philanthropic, central activity. Teachers can get on this Website -- teachers -- and download lesson plans from anyplace that they can get them. So we have watched tens of thousands of teachers bypass their local school districts and their local curriculum to provide additional training, additional information and to get learning done in a different way.
We now have parents getting onto this Website. So -- and we're just one company. So this will multiply. I am totally convinced that the technology -- we're not -- we don't claim to know how to use all the technology, but we are convinced if we can reduce the cost and get the distribution broader that there are people who have the capabilities to know how to use the technology better than we'd ever know how to use it.
MURRAY: Yeah. And how about -- well, let's talk about health care for a little bit. And health care is an interesting one, of course, because we just passed this big health-care law. Your company has been in the news for being one of the companies that made the big writedown as a result of that law. Does that get us closer to your vision of where health care needs to be?
SEIDENBERG: So is the question about the writedown? Or is it a broader question? (Laughter.)
MURRAY: I'm trying to -- I was just trying to wrap it all into one question. You can take them one at a time.
SEIDENBERG: You want me to hang myself on this one -- (laughter). You realize there are three people from the White House in the ceiling -- (laughter) -- listening to what I have to say.
So the health care. Look, I think you all know this. So the side of the health-care bill that attempted to broaden access is good. How can you argue with that? You know, we all agree with that. Business Roundtable signed up for that immediately when the thing started.
So as we got down the path and we got to the end of the process, for whatever reasons, we ran out of energy and we didn't focus on the back end of things as much as I would have preferred. So I'm worried that there are some unintended consequences where the costs will exceed the benefits for quite a long time.
And here we get into this big political debate. You know, Democrats think business is being political and, you know, business doesn't think the Democrats are quite listening to the reality of what's going on. So there's always truth on both sides of the argument.
I was mentioning to Alan a minute ago that, if -- this morning, the Times had an editorial on our writedowns which, you know, we make the Times editorial. And the Journal had a sidebar editorial letter. And what's amazing is they were both right. And I usually don't say that.
So the Times said, well, yeah, they did have to take the charge because it was required by law. But they also made the point that the subsidy we were getting is probably not warranted. Okay. We don't argue with that.
But the fact is the bill eliminated the subsidy to lower the deficit because when you transfer cost to business, the CBO doesn't count that against the deficit. So the fact is they used us to collect more revenues. We didn't complain about that. All we did is we followed the law and we took the charge.
The Journal editorial took a little different view and said, well, the White House should have accepted the fact they did use business to collect additional revenues to offset some of the cost instead of trying to make believe it didn't exist.
So both aren't exactly wrong. Now, if you look at the health-care bill in general, look, I think we needed to do something. My personal opinion is I never bought into the deadlines that got set. So -- and I told this to both -- leaders of both parties. I just never understood why, all of a sudden, the clock had to stop. We could've been working on this. The bill has a lot of good things in it, but it's light on controlling the escalation of costs.
And so we have a lot of theory in terms of how this will work over the course of the next five to 10 years. So almost all the provisions in the bill that will drive efficiencies don't kick in until 2014, 2015. Most of the fees that go into effect start right away. And so I think, as a business person, I would be irresponsible if I didn't point that out.
MURRAY: Well, so there's a --
SEIDENBERG: So we just have to do that. Now, that doesn't mean we're against the bill, it just means that we want to keep trying to make it work.
MURRAY: But let's talk about the broader environment a little bit because you do have an environment where public skepticism and attitudes towards business are at an unusually low point as a result of what we've been through through the last couple of years. And you have an administration -- you can argue about what the administration's posture towards business is -- but I think what you can't argue about is that this is the first administration in my lifetime where you haven't had a single businessperson in a prominent Cabinet administration role.
Is that a problem? Are you concerned about that as head of the Business Roundtable? Do you see that operating in Washington?
SEIDENBERG: You know, you single-handedly can fix this perception of business, by the way, by your reporting.
MURRAY: Me personally?
SEIDENBERG: Yeah, you could personally fix this. You can.
MURRAY: What would you like me to do?
SEIDENBERG: Well, you can say nice things about business. (Laughter.) So let's address this issue because I think this is -- to me, this is an unfair rap on the White House. So to the president's credit, he has had more meetings with CEOs than the previous three presidents combined, and he's only done it in the first year-and-a-half. The fact that we can put a token businessperson into a Cabinet job doesn't change anything.
So on this one, I don't subscribe to the theory that, somehow, they're tone deaf to business. I think they've been trying hard. And I think, if there's an issue, their philosophy may be more in the way than whether or not they're talking to us. And that's okay. That's a legitimate public debate.
But, look, for what it's worth --
MURRAY: But you say "if there is an issue." In your -- I mean, you know much more about that an any of us sitting in this room. Is there an issue? Or is this no different than it's always been?
SEIDENBERG: No, I think you take the health-care bill, I think the longer it stayed in the House, the more it changed toward -- I don't like bad labels -- but more to a more populous government-sponsored activity than the original Senate bill.
But having said that, what I want to get at, I don't think this White House is particularly anti-business. He's had -- the president has had -- I've been there three times. And he's had other CEOs -- many CEOs -- in there all the time. So I think I give him credit for that. And he's engaging, and he asks questions. So I think -- I'd like to put to bed the idea that he's not listening to them.
But having said that, he has a view and he wants certain things done. And he believes, for example, that it was more important in health care to get access fixed before we got costs. Even though we talk about cost, we fixed access. Now, we have to work on costs. Okay. That's way it works.
MURRAY: You don't buy the argument that the health-care bill addresses the cost problem?
SEIDENBERG: I need to see the evidence a little bit further. I'm not saying it won't, but there's a lot of things that have to go right for this to work. Yeah.
MURRAY: So let's go back to this FCC broadband plan because, as I understand the reason the FCC took this on was because of this general sense that, somehow, the United States was lagging in competitiveness in broadband. Penetration rates in other countries were higher -- are higher than they are in the United States. And so there was a sense that we needed a government policy to assure that we could compete with the rest of the world.
I gather you don't buy that view.
SEIDENBERG: That's not right. That's not true. The facts in here don't support that.
So since you need a one-liner, okay, so here's the one-liner to just keep in the back of your mind when I talk about this. Anytime government -- whether it's the FCC or any agency -- decides it knows what the market wants and makes that a static requirement, you always lose. So this FCC decided that speed of the network was the most important issue. So that's all they measured.
So they will say, if you go to Korea or you go to France, you can get a faster Internet connection. Okay? That could be true in some companies -- in some countries. The facts are that, in the U.S., there is greater household penetration of access to the Internet than any country in Europe.
In Japan, where everybody looks at Japan as being so far ahead, they may have faster speeds, but we have higher utilization of people using the Internet. So our view is, whenever you look at these issues, you have to be very careful to look at what the market wants, not what government says is the most important issue.
Let's take wireless, for example. Everybody says the European system was kind of better. Well, that's very interesting. If you look at minutes of use, the average American uses their cell phone four times as much -- four times as much -- as the average European. If you look at Europe, they publish penetration rates of 150 (percent), 160 (percent), 170 percent meaning that people have more than one phone, two phones, three phones.
You know why? Roaming rates are so high. My guess is you probably have two or three different phones to carry to -- to use in different countries because your roaming rates are so high. And you say, yes.
So my point is it's a fallacy to allow a regulatory authority to sit there and decide what's right for the marketplace when it's not even close.
MURRAY: So on the measures that matter most to you, where does the United States rank in terms of --
SEIDENBERG: One. Not even close.
MURRAY: Number one?
SEIDENBERG: Yes. Verizon has put more fiber in from Boston to Washington than all the Western European countries combined. All. We have -- if you look at smart phones -- not us, Apple, Google -- they have exploded this market in the U.S. Ask any European if they're not somewhat envious of the advancements of smart-phone technology in the U.S.
So it just seems to me this is just not even close.
MURRAY: And how does that translate into sort of a broader sense of U.S. competitiveness against the rest of the world? I mean, we're going through one of these periods of collective angst about our standing versus other countries. Go ahead.
SEIDENBERG: Now, this document -- if it was redirected and it talked about -- and it does a little bit -- talked about capital formation, cyber security, standards, it would be a home run. We're there on that. There's no question --
MURRAY: What do you mean by that? Do you mean that things need to be done in those areas?
SEIDENBERG: Well, government has a role in the issue of whether it's tax laws, depreciation rates, whatever they do, to attract capital into an industry. They could do that if they want to instead of worrying about how many hours a community center might be open in Bismarck, North Dakota.
MURRAY: But is capital formation a big issue?
SEIDENBERG: It hasn't been, but it could be. It could be. If we increase costs, we turn around and delay --
MURRAY: What's -- are you talking about concern about what's going to happen with taxes? Are you talking about --
SEIDENBERG: No. I'm talking about overreaching in regulations. You know, there are lots of decisions. For example, this document also talks about -- and there may be some net-neutrality advocates in the room -- but this document spends, I guess, a whole section on opening up set-top boxes that are in your house for cable. So let's open them up to create more open access. It sounds like a great idea. Right?
What does the FCC know about opening up set-top boxes? Why would they even think about that? And I'm not even in the cable business like Gus is. I mean, our own business. But it just seems to me these are the kinds of things --
MURRAY: And the theory is, if you force cable companies to open up the set-top box, they may lose the incentive to make the investment?
SEIDENBERG: They might. But then Apple comes around and comes up with an iPad that doesn't even care about a set-top box. They just go around the whole thing. So what would it do is have a regulatory authority trying to play catch-up regulating cable companies and maybe companies like us when, in fact, other people are onto something completely different.
So it's a real problem to have well-intentioned people in Washington regulating the business as they understood it to be in 1995. Bad idea. (Laughter.) It doesn't work.
MURRAY: Internet security, you mentioned --
SEIDENBERG: Yeah. Look, we surveil our network to the tune of -- we look at 5 billion touches to our network every day to catch breaches. We're not the only ones that do that.
MURRAY: What does that mean? You look at 5 billion breaches -- security breaches -- every day?
SEIDENBERG: Every day, just us. And we're kind of one of the largest ones. So you can look at the scale.
But you think of all the bad things coming out of Russia, China, Bangladesh --
MURRAY: But 5 billion of them a day? That's a lot of bad things.
SEIDENBERG: Well, we're only one small piece of it. So there are probably 30 (billion) or 40 billion. So just think of -- it's a real issue, by the way. Cyber security is a real issue.
We spend -- our company alone -- spends in the hundreds of millions of dollars protecting our customers' network. So the government --
MURRAY: Yeah. What do you want the government to do?
SEIDENBERG: Well, I don't think -- I don't know what they should do. I think they could think about it more often. I think -- and they do. There are other agencies that are working on it.
But there are all sorts of issues with this, and I think it's an important issue. Standards is another one. You know, if people think we should move on a common architecture for equipment, okay, you know, government could jawbone on that a little bit. So there are things that people could do.
I don't think there is no role for government, I just worry about, when you allocate capital and you look at consumer behavior, that is not a strength of, I think, everyday transactional activity of government agencies, particularly federal government agencies.
MURRAY: Can we talk about China for a little bit? Because I know, on the one hand, you have a business arrangement with China Mobile, on the other hand, you've been openly fairly critical about policies -- government policies -- that disrupt the free flow of information.
SEIDENBERG: Yeah. Well, we're probably not the leading-edge company around China. Remember, we're in a service business. So for China, there are very -- there is really no openness with respect to service industries like ours. So the only thing, basically, that occurs between us and China is, whenever we want to do a joint venture with them and we're willing to give them our intellectual property, they are usually very receptive to that. (Laughter.)
So we have basically gotten out of all our joint ventures with China. Now, this venture you talk about, we joined with SoftBank, with China Mobile, with Vodafone and us to look at developing applications to ride on wireless devices. So, in that case, this joint little group, which is headed by our SoftBank partner, will develop applications that will have a global standard so we can connect the same applications to China Mobile's customers, to Vodafone's customers, to our customers.
And so that's -- when you add it up, it's about a billion-plus customers. So we thought, by creating the scale economies around a consistent set of applications, we can drive some value there.
MURRAY: But putting on your business statesman, Business Roundtable hat again, is there a broader threat to our society in the fact that China restricts the flow of information in the way it does?
SEIDENBERG: Yeah. So, okay. I'm not the foreign-policy expert, but I think our company's position is that there should be no restrictions of that nature. But it's also not our business to tell China what to do or what not to do.
But here's what we will do, what we've always done. We will figure out ways of deploying the technology as widely and as broadly as we can. And I think, in the long term, what they're doing is not sustainable in the long term. It just won't be sustainable. And so our view is our contribution, unlike Google, is not to take them on. Our contribution is to build the things that change the world. And I think that's what we do. And I think, in the long term, that's a better position for America to be in.
Now, one of the things, if I may, to get on this roundtable thing -- so one of the things we -- a group of us told the president is this whole idea of doubling exports, so -- and then that leads to all these trade agreements and everything else. That -- we have talked about America being export driven, but the business community doesn't feel we put teeth. And do people really believe us when we say that?
And I think that we need to really put some muscle behind that as opposed to just making that a platitude.
MURRAY: Well, what sort of muscle are you talking about?
SEIDENBERG: Well --
MURRAY: Again, it gets back to the role of government. I mean, do you want --
SEIDENBERG: No. In this case, the only people who can negotiate the Doha and all these other agreements are government. So the issue is we've got to show some additional resolve and additional teeth in the --
MURRAY: We haven't done enough to get a trade agreement?
SEIDENBERG: That would be the general consensus of the roundtable companies. So if we forced our way into the system and said we're really interested in this, we make this a priority, it won't change things overnight, but it will start the ball rolling to people think thinking, ah, something's changed with these people in the U.S. about this question.
MURRAY: And how do you feel about the administration's willingness to take that on?
SEIDENBERG: I think they are sort of gearing themselves up. You know, they haven't said no, they haven't said yes. I think the president has been extremely interested in this subject. I know a couple of the other CEOs of companies that have much broader manufacturing activities worldwide really worked them over on this issue. And he was -- you know, he sat up in his chair and he listened and he was firing comments back to his staff.
So that was a good sign to us. And I think -- so the learning process is there. I don't think -- to be fair to him, he came into the job with an instinct for this, but I think he's working on it. And what we're trying to do is ask him to move a little quicker on it.
MURRAY: Let's open it up for questions. Raise your hand. Wait for the microphone. Please give your name and affiliation.
QUESTIONER: Hi. Glen Greenberg, Brave Warrior Advisors.
The question I have for you is how much will it cost you to hand over your health-care insurance to the government? And how does that compare with what you're spending now per employee?
SEIDENBERG: Yeah. So we spend about -- between cash out the door every year, we spend about $3.7 billion as we reported last year. So that includes actives and retirees.
We insure about 900,000 lives, including retirees. We have about -- so break the 900,000 down, we have 225,000 retirees, 600 and change, okay, in terms of active and families.
So what we've done on health care -- just so it's pretty clear -- and this subject is one of the most painful to me going because you're stuck with a problem that you hate because you're always in this business of shifting costs to your employees.
What we've done over the course of the last 15 years is basically say to our employees, we'll do the best we can at using our scale. And we used to subsidize 90 percent of every dollar. Now, it's about $0.72 of every dollar.
So if you work for us, you pay 28 percent, we pay 72 percent, okay? What we've also stopped doing is guaranteeing that, when you retire, we will give you any subsidies going forward. So if you had that deal before, you still have some subsidy. But for all new employees --
So you take our entire wireless company, people leave and they retire, the only thing the company will offer them is post-retirement access to our plans, and they pay the full freight.
So those estimates today for a single person could be 7 (thousand dollars), $8,000 a year. Families are $13 (thousand), $14,000. Estimates are it'll go to 22 (thousand dollars), 24,000 (dollars) over the next four or five years. The health bill was passed. It remains to be seen how much that cost curve will bend, and we'll look hard at it. So now let's get to the answer to your question.
I think there's no doubt that what companies will do is shift more of that burden to customers and employees, and here's the reason: That A, it's obviously a cost issue to every profit line. But our belief is, whether people like this argument or not, if you have to pay 28 percent or 38 percent, you will shop better.
One of the arguments we have made on this issue for --
MURRAY: So this is a good thing? The fact that you will shift more to your employees, you think is a good thing for the --
SEIDENBERG: Well, I don't want to go get quoted on that point. Here's what I would say. Unfortunately -- right? -- the market, in the long term, will fix this problem. That's what will happen. If our debt gets too high, the rating agencies will downgrade the country. You know, that's what's going to happen, right? And so the same thing on health care. If we don't bend the cost curve, people will have to --
MURRAY: And the way to bend the cost curve is to put more of the burden in the hands of the people who are making the decisions?
SEIDENBERG: Give more choices to people so they can shop. You know, look, let me use two examples. They're not perfect, but -- so, take LASIK surgery. I don't know; my guess is if statistics are right, 15 percent of the people in the room had LASIK surgery. Is that a fair thing? I had it.
How many people had it? You don't want to admit it.
MURRAY: They're not -- oh, there's our vote. There are a few hands going up.
SEIDENBERG: When I had LASIK surgery, it was not covered by insurance. You know, I interviewed three doctors; I shopped around. I figured out who did it. Same thing. So there are plenty of ways in the health-care world where the market will do a better job.
Now, one of the things in the bill that's good, they'll finally start publishing all of the Medicare data. You'll start to see, and people will start to ask questions. So I think that in deference to my Democratic friends, some market dynamic here is not a bad thing. So I think in the long term we need more market dynamics.
So the short answer to your question is I'm not going to get up every day and allow our costs to go up 10 percent every year. I can't let that happen. So we're going to have to shift more and use our scale economies to try to drive down pricing.
QUESTIONER: (Off mike) -- pass that on to the government?
SEIDENBERG: All right. Last question. We could push some of our employees, for example, in the prescription drug program, into it, if we chose to.
We have nowhere near made that decision. But over time, we'll have to see what options exist for our company.
MURRAY: Question in the back.
QUESTIONER: Thank you. Bal Das from Kailix Advisers.
Now, over the last many decades, in some form or the other, you've been a part of and have presided over fundamentally a technology and technology service company.
I would be interested in your views on, as you see matters evolving, where do you see some of the most important challenges that we as a nation face in technology and innovation, and some of the opportunities in technology and innovation?
SEIDENBERG: Okay, so that's a -- let me see if I could, as a businessperson, just focus on that question this way.
I think the gap between the capability of the technology and the innovation that needs to occur to deliver new products and services, new capability, is too long. And what we're finding is either great countries or great companies close that gap.
Apple closes that gap. Apple's been good enough to say, I know what all this stuff could do; it's magic. But they get the markets faster than everybody else. So I think as a country we have to stop thinking about, well, all these things will happen naturally, and we have to get ourselves strong-willed enough to make them happen sooner.
And I think this a difference between government and business. I look at my own industry, and companies that thought they could ride out the wave didn't ride out the wave. Companies that made the investments and talked about what they needed to do to close the implementation gap have done a lot better.
So I think as a country we don't spend enough on R&D; we don't spend enough on education. And I can go down the list. We don't have enough execution skills to go with all of the things that make a difference in terms of all the capable technologies.
No matter what industry you brought up here -- the pharmaceutical, the medical, the energy -- I'll bet you they can razzle-dazzle you with wonderful-sounding capabilities for the long term. But I think America's facing a problem where the short term is going to overtake us if we're not careful. And I really worry about this.
Now, I'm on the last leg of my career here. I'm 63; I've never been more worried about the next 10 years than I have been in my entire career.
MURRAY: Because the --
SEIDENBERG: Because of this question of are we -- is our pace of advancement too slow? And I really worry about that, and I really try to --
MURRAY: And that's a private sector and public sector worry?
SEIDENBERG: I think it's a joint issue for all of us, absolutely. And I think -- you know, there's an academic and a government flavor here which generally gets the right directional answers here. But there's a clear execution gap.
And you know, we lost it -- the last 16 years we lost it, whether -- no matter what your preferred party, and I was here for both. I've been a CEO 15 years, so I watched Clinton and Bush.
And I watched it, and we got distracted with all these issues that had nothing to do with making every household stronger and every job better and every business working better. And so I worry about that.
And I think that one of the reasons I agreed to take a more leadership role in the business roundtable is to get a chance to answer a question like this and bang on this question of we've got to be more practical in getting our country to compete a little bit better. We've got to compete.
Question right here, please.
QUESTIONER: Hi. It's Jose Maraillon (ph), from Telefonica, just to say that in a big part I agree with what you said about the broadband marketing in the United States. It's true that many of the statistics that they are using are not correct.
And I agree you are doing very well, and luckily, Europeans are now also looking to the States to see how the regulation here is going and what we are doing and luckily enough, we are copying in many cases the good things of the United States. So that's that.
Then one clarification. I just have two cell phones. One is an American one and the other one is the Spanish one, because it's true that the roaming charges are high. And they are very high also within Europe because of the fragmented market. And definitely something that the operators would like to have is a single market in Europe.
And then my question would be for you, I think that we will agree here in the sector and out of the sector that we are going to have this explosion of data; you know, (people ?), video.
But the real challenge for operators like you or like us is how are we going to monetize that explosion. Because people are used to flat rates. I'm not sure people are -- well, I'm sure they are not willing to pay, or to pay more.
So I would like to see or to hear from you the strategy you are putting in place to monetize that explosion of data.
SEIDENBERG: Do you mind if I answer that?
MURRAY: No. I think it's a good question.
SEIDENBERG: This is -- thank you for the question. Thank you for your comment. This goes to my investors so they don't think we're crazy.
So when you look at this question -- so let's look at the dichotomy between a carrier and the Silicon Valley types.
So most people think a carrier wants to charge for every minute on a linear basis in perpetuity, infinity. That's what you guys think, right? You're right, when we do that.
We don't really want to do that. What we want to do is give you a chance to buy a bundle, a session of 10 megabits or a session of 30.
The problem we have is 5 (percent) or 10 percent of the people are the abusers that are chewing up all the bandwidth. That's what happened with music and all that kind of thing.
So what we will do is put in reasonable data plans, and we've done this. We've just introduced a $30 data plan that does with every one of our BlackBerrys or smart phones, a 10 (dollar) or a $30 data plan that covers the majority of people who feel that's a fair price. I get to use it for 30, 40 hours and I pay a certain rate.
But when we now go after the very, very high users, the ones who camp on the network all day long every day doing things that -- who knows what they're doing -- those are the --
MURRAY: It's video, right? I mean, it's video.
SEIDENBERG: But those are the people we will throttle and we will find them and we will charge them something else.
Now, the dilemma we have is that government will come in and say well, I'm not sure we want you to do that.
MURRAY: Net neutrality. We want --
SEIDENBERG: Net neutrality could be used against that.
So the issue is, to answer the question is we don't want to have a linear pricing scale. We do want to find a way to give the majority of people value for bundles, but we have to make sure we find a pricing plan that takes care of that 10 percent that's abusing the system. And it's that simple.
And therefore you have to have rules, give us discretion to run our business. Net neutrality could negate the discretion to run your business, and -- if you take it to its ultimate extreme. So that's just an example.
I hope that helps.
MURRAY: He was a plant. That was a plant. (Laughs.)
SEIDENBERG: No, he's got the same issue. He's got the same problem. He's got the same issue.
MURRAY: Other questions?
SEIDENBERG: But we don't want to throttle demand. We don't want to do that.
MURRAY: Yes, sir.
QUESTIONER: Herbert Schlosser, Citigroup.
MURRAY: Hang on just a second for the microphone. It's right behind you.
QUESTIONER: Thank you.
The FCC says the broadcasters have more spectrum than they need, and they want to take a hunk of it back.
Now, the broadcasters would argue that that spectrum has a real value and it will permit, in the future that you describe --
QUESTIONER: It will permit them to get into businesses and use it in a way apart from broadcasting.
How do you think that issue will wind up? Given the strength that broadcasters typically have in Washington, do you think the FCC will succeed?
SEIDENBERG: Yeah. This is a really good question.
Now, of course, if I took the self-serving approach, it would be okay, screw the broadcasters. Let's get their spectrum and we can put it to use in our wireless and cellular business or broadband business.
My reaction is going to surprise you. I don't think the FCC should tinker with this. I think the market's going to settle this. So in the long term, if we can't show that we have applications and services to utilize that spectrum better than the broadcasters, then the broadcasters will keep the spectrum.
Let me just give another point. So the FCC is --
MURRAY: There is some history there in terms of the agreement that was made with the broadcasters at the time they got their digital spectrum.
SEIDENBERG: That's true. But in all fairness, I have never seen any FCC ever, ever honor any agreement to any prior (relationship ?).
(Laughter.) Right. That's good. And that's the reason we have courts, because generally we end up resolving these things in the courts.
And so -- and by the way, having been in the business so long, you know, healthy tension is probably not a bad thing as well. Some people have to test it.
But just let me answer this thing, and not to -- Gus is here, so it just reminds me of this. Cable companies have bought spectrum over the last 10 or 15 years that's been lying fallow. They haven't been using it.
So here the FCC is out running around looking for new sources of spectrum, and we've got probably 150 megahertz of spectrum sitting out there that people own that aren't being built on. I don't get that. This annoys me.
So the issue is there are -- by the way, there are -- not to leave the broadcasters out of the debate, there are lots of issues that we have with retransmission and things of that nature we need to solve. But basically, confiscating the spectrum and repurposing for other things, I'm not sure I buy into the idea that that's a good thing to do.
MURRAY: Do you foresee a spectrum problem?
SEIDENBERG: I think that -- yes and no. So here's the way you look at it.
To an engineer, we could put a tower every 12 feet. (Laughter.) Okay? Very expensive, and we won't have a spectrum problem. So if you all want to carry a tower in your back pocket, then I think we're going to have some form of a spectrum issue.
So I think what you need is you need to allow natural forces to drive capital to where they're naturally going to work. So Sprint and Clearwire are building a 4G network. We're building a 4G network. AT&T's going to build one. I think that's good.
If video takes off, could we have a spectrum shortage in five or seven years? Could be, but I think that technology will tend to solve these issues. And I think, as I said, I happen to think that we'll advance fast enough that some of the broadcasters will probably think, let me cash out and let me go do something different.
So I think the market will settle it. So I don't think we'll have a spectrum shortage the way this document suggests we will.
MURRAY: Question way in the back.
SEIDENBERG: Uh oh. No, no, he can't ask a question. (Laughter.)
QUESTIONER: (Inaudible) -- related.
Ivan, picking up on what you just said, would you explain your concerns about retransmission and perhaps explain what it is?
SEIDENBERG: I'm not going to do that. I'm just -- I was just having fun with her.
Look, I think that we pay. You know, we've agreed to pay a retransmission fee, because I think that's kind of the way it is.
But look, I think what we've filed in our documents -- you all probably know something about retransmission. But the idea here is that we think the rules around the original deals that broadcasters had need to be modernized a little bit.
And so government should sort of level the rules so that there could be good negotiations and we don't end up with the situation we just had in which things go down to the end and one side can't call the other on the issues.
So look, the bottom line is for cable companies to say there's no value and therefore I won't pay something for it is probably not right. And for broadcasters to ask for the moon is probably not right. So there needs to be some leveling of the rules, Jay, so that the negotiations occur without putting the customer in the middle of the deadline issue.
That's as far as I'll go with that one.
MURRAY: Right here.
QUESTIONER: John Jefferson, the other U.S. telecommunications company.
SEIDENBERG: (Laughs.) Good one. You're a good one; right.
QUESTIONER: Thank you.
What, if anything, bothers you about the concept of broadband as a basic human right?
MR. : (Off mike.) (Laughter.)
SEIDENBERG: And AT&T lets you in the room? (Laughter.) Okay.
QUESTIONER: (Off mike.)
SEIDENBERG: Yeah. It's a rhetorical question.
Well, look, I don't know. I'll give you my own opinion on it. I don't think any of these things are human rights. I think people who argue that are way overstepping their bounds. It's like, health care is a human right? I don't think so.
So I think we have an obligation as a society to do a better job of distribution and getting it out there, but I don't buy into the idea that basic services turn into human rights. That's --
Because I think that destroys all semblance of a capital market, allocation of capital, choices for people. And so -- you know what's interesting, that comes from -- we're like brothers in this, right? So the issue is, when we look at our industry, it would be unacceptable to leaders in our business to have 50 million people like we have in the health-care industry opt out of buying our services. So it just seems to me that it's not an acceptable answer.
So how the health care got to where it got to, with so many people just choosing to think having no insurance was better than having insurance, it's a failure of the -- of both government and industry.
So to your question, if we allowed ourselves to provide such a poor product at prices that didn't attract people, then we'd deserve government coming in and doing that. but I don't think that's our history, and I don't think that's the history of most businesses.
So I don't think we should be talking about any of these services as a human right. I think it just leads to a very different society and a very different structure of how things get done in a country.
Please, remember this statement now. Don't -- (scattered laughter).
MURRAY: Right here.
QUESTIONER: Herbert Levin.
When you said health care is not a human right I was reminded that Vice President Cheney also began life as a cable splicer. It seems to affect people's judgment.
(Laughter, groans from audience.)
But my question's very simple. In Washington, D.C., I have a home and Verizon won't provide broadband. And when you ask them -- we've got 30 houses on the block -- they say, well, it doesn't pay to put a step-up switch for that block. Have a nice day. So we can't get broadband within sight of the Capitol dome on a clear day.
I have a home in Vermont, and Verizon decided Vermont was very boring and turned it over to some company that went bankrupt. And the only way I get broadband there is that I had to put up a huge tower of my own.
So I'm not very impressed that the market provides broadband service. And I visit France and stay with my French friends, and I think it's great.
SEIDENBERG: Do you expect an answer here? (Laughter.)
My guess is --
AUDIENCE MEMBER: He moved into the wrong neighborhood. (Laughter.)
SEIDENBERG: No, no, no. Let's get the facts. My guess is, in Washington you have a choice. You have a cable company that operates there and you have a satellite company that operates there. And the answer is -- I know you do.
So the issue is, if your issue is I have to provide you a service because you think that's an obligation I have, I don't agree with that. And so the issue is if you move to Vermont, I don't know. When you bought your house, did you ask if there was broadband?
QUESTIONER: Hadn't been invented.
SEIDENBERG: Hadn't been invented? Okay, so the issue is there's choices for this. So my only comment is, as a business, we deploy as widely as we can. But if it's not efficient, I don't think we have an obligation to do it. And you might disagree with that, but -- you do -- but I think we have choices.
Now, the only thing I really find offensive is you comparing me to Cheney. (Laughter.)
MURRAY: We're going to move on quickly. (Laughter.) Right here. Mr. Price.
QUESTIONER: Thank you. I have a quick question, but I'd like to answer one which Jay Kriegel answered, the chairman answered it very properly.
There's plenty of spectrum available, unused spectrum, and spectrum that you could always buy for competitive value. So if the broadcasters want to be in the spectrum business, they can go out and buy it.
Secondly, I'm really unemployed, but an investor. And I've studied about 60 cellular companies, as the chairman may know and his staff certainly knows. And I came to the conclusion that there was only one cellular company that would survive, and that was Verizon. My board of directors came to the conclusion, pursuant to Sarbanes-Oxley. And after I advised them, they accepted my judgment.
In terms of service to employees, service to customers, buildouts, capital -- certainly cash flow, there's no company in America and in the world -- and I went to Italy, I went to Brazil and other places -- that has the cash flow per shareholder, nor has the stock done as well, as Verizon.
So in answer to the -- to your earlier question about Vodafone and Verizon, the combination of the two, which was the discussion prior to your asking the question publicly, I think it'd be a great mistake to even consider Vodafone buying Verizon, because your stock would tumble. (Laughter.)
Vodafone, it's a great company, but it's all over the world. I don't think I know what the hell they own. And to buy Verizon, where I believe you and certainly Denny Strigl and others in your company know everything you own, where every tower is, where every cell is. And I have firsthand knowledge as an investor that you know where it is. That's what Verizon should buy, Vodafone, regardless of what the capital markets and Moody's says about it.
And my congratulations to what you've done --
SEIDENBERG: Thank you.
QUESTIONER: My grandchildren thank you for their investment in Verizon -- (Laughter, applause.)
MURRAY: I think we should let you quit while you're ahead. (Laughter.)
SEIDENBERG: I'm buying him lunch. I'm going to buy him lunch.
MURRAY: Thank you very much. Thank all of you. (Applause.)
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