Larta VOX Exclusive: Q&A, Shaygan Kheradpir, Chief Information Officer, Verizon Communications

Shaygan Kheradpir, Venture Forum 2003 keynote speaker and Chief Information Officer at Verizon Communications, discusses how the telecom giant plans to grow after the industry's hard fall.

Given the great rush to telecom in the late 1990s and the slower than expected pace of adoption by consumers, what are your opinions (both positive and negative) on how these developments have shaped the current industry environment?

Despite a challenged economy and regulatory uncertainty that has slowed overall growth in the telecommunications sector, Verizon remains poised to succeed. At its core, Verizon is helping people communicate wherever they are (globally) through multiple mediums including local, long-distance, wireless and Internet-enabled services.

If people are communicating in the U.S., there is a strong probability that Verizon is involved given the company's scale and scope. As society continues to change customers' communications behavior, our business continues to evolve to drive progress in developing and marketing communications tools and services.


April 3: Venture Forum 2003

The Venture Forum 2003 will address new opportunities, current trends, and market realities and present an outlook of the future of emerging technologies. In addition to presenting companies who define technical excellence, world-class experts will share their knowledge about meaningful investment opportunities amidst the current marketplace. Keynote speakers: Shaygan Kheradpir, Chief Information Officer, Verizon Communications; Albert Myers, Corporate Vice President and Treasurer, Northrop Grumman.
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As the economy cooled down in recent years, Verizon has challenged innovation at the deepest roots of the organization. This innovation--quite different in nature then what dot.com start up companies exhibited in the 1990s--is best characterized by achieving infinitely more out of existing assets in a time of capital reductions.

As competition has intensified, Verizon has focused its attention on creating unprecedented value to customers to help them succeed. When Verizon develops a bundle for its customers, it is far more than a bucket of products, but an integrated communications and social structure management suite that helps people live more effectively and productively.

In addition to offering traditional telecommunications services, Verizon will soon be offering services that bring the Internet, personal computing, and communications networks together for a single integrated communications experience. This "personal network" will build on Verizon's network strengths, integrating Web and computing tools with ones' communications network, and helping people communicate anytime, anywhere on any device.

In the months ahead, Verizon will be leading the way in bringing to the residential and enterprise market an enhanced form of collaboration that will allow people to collaborate and share information through wireless, wireline, long distance, Internet, data sharing and Internet meetings. Verizon intends to not only expand market share in existing markets, but create new markets by linking all aspects of customers' life with a focus on progress, speed, quality, convenience and reliability.

So despite the industry's challenges, it is an exciting time for Verizon. In the coming years, the fundamental modes of communications will be refined and enhanced and people will use telecommunications and advanced technology to reach unprecedented levels of productivity.

What do you think are the most important technological advances that will impact consumer options, market demand, and the industry?

Expanded deployment of broadband, fiber optics to the home, WiFi and Web services are chief among the advances in technology that will have a material impact on the way people communicate in the coming years.

Verizon recently announced plans to expand about 10 million digital subscriber line, or DSL-ready lines to the 36 million the company has today. In so doing, Verizon will construct DSL capacity that will make its broadband network available to more customers than any other network in the U.S. More broadband means a higher level of productivity for Internet users.

For our larger customers, and there are thousands and thousands of them, the choice is fiber optics. Today, Verizon serves tens of thousands of businesses with fiber, delivering data over packet networks that carry both computer traffic and voice, and we are interconnecting that network today to carry traffic between those metropolitan area networks.

The Verizon network is constantly evolving, and that evolution will mean more and more sophisticated technologies for delivering broadband to homes and businesses.

Specifically, we believe the area set for the biggest change is the copper loops of today--the connections between the customer and the global communications network. While we expect to deliver broadband using DSL over these loops for some time to come, these loops will actually be replaced fiber optic technology. Fiber optics trials have been more promising recently. If things go well on both the technology front and in the regulatory arena, we will consider an initial roll-out of fiber to the home beginning in 2004.

So what this means is that we now see the communications access technology evolving to fiber for our entire customer base. We are now building the network of the 21st century--broadband at higher and higher speeds, always on and carrying both voice and data for customers of all sizes.

The emergence of WiFi will provide freedom and flexibility for people who need to remain connected, but want to break free from the shackles of wires and cords. Increasingly, we expect to see more and more people take advantage of the thousands of hot spots sprouting up across the country at phone booths, airports, coffee shops and other public spaces.

Emerging technologies are making it possible for our customers to communicate in new ways, and enable us to create innovative solutions and integrated products for the changing market. Without technology enablers for our internal business functions, we would not be able to perform basic tasks such as dispatching trucks, paying employees, taking and fulfilling customer orders timely, or even providing features such as call waiting and caller ID.

We're building on our foundation, which has endured over 100 years of success in meeting customer's communication needs. We are building our features and developing new products to keep up with the changing world.

We are leveraging on our core assets and telecommunications, network and expanding the reach of traditional products through innovative use of Internet technology. We will do this by creating a new digitized customer experience with a griping electronic face in the form of Web services.

In so doing, we will be providing people with the ability to communicate anywhere, anytime. For example, a customer can be in Grand Central Station, open a laptop and have access to a complete virtual office with typical phone features through a wireless Internet portal. Or, they could be visiting a relative in Southern California and connect to check their email or pay their Verizon bill online and dynamically manage their home phone traffic to ensure they do not miss a call.

With the launch of the Internet, we have established a new eChannel, which has considerably changed the way we do business with our customers. In the past few years we have moved many of our core customer transactions to the Internet. Two million Verizon customers have elected to register on Verizon.com and are conducting millions of transactions per month without ever picking up the phone. In the future, the Internet will impact the business moving beyond transactional business functions and into integrated product deployments.

We have been able to dramatically reduce the customer cost of doing business through customer self-service. Online, customers and employees are communicating in ways we could never imagined before at lightning speed. We can also connect our employees across multiple locations real-time and have enabled real-time decision making at all levels of the business. Things that use to take months and now take minutes via the intranet. The combination of changing modes of communication and technology allows for more time for the employee and increased productivity.

How do you think the growing complexity of regulation will affect the industry landscape? How does Verizon incorporate regulatory issues into its business strategy?

Competitive momentum is overwhelming in the U.S. telecommunications industry. The natural monopoly of the phone company is dead, undone by technical advances and lower barriers to entry. Cable, Internet, wireless and WiFi all compete with the traditional telephone, providing different ways to communicate.

Today, facilities-based competitive local exchange carriers (CLECs) comprise a $52 billion industry that serves 27million telephone lines. Resale of incumbent local exchange carrier (ILEC) service is a viable entry strategy, with 4.5 million lines served via resale. Healthy facilities-based competition like this is what the 1996 Telecommunications Act envisioned.

Unbundled network element platform, or UNE-P based competition is the big exception. By reassembling "unbundled network elements" into phone service, the "platform" is a loophole bypassing the resale mechanism provided in the Act, enabling CLECs to purchase ILEC service for resale at below-cost rates.

Regrettably, unbundled network element platform, or UNE-P, rates that are 50 percent or more below the ILEC's cost enable CLECs like AT&T and Worldcom to enter a local market with no capital investment, immediate profit and even while competing with the ILEC on price.

As such, UNE-P-based competition results in declining investment and no innovation, with ripple effects felt throughout the economy as manufactures see fewer orders and research and development suffers.

And since mass-market broadband deployment is the central communications policy objective in the U.S. today, the Federal Communication Commission's challenge is to get the economics of public policy right. That means the FCC should continue to work toward implementing a sound national broadband policy that allows the market to drive efficient deployment by removing regulatory obstacles to investment (such as unbundling requirements), and apply a consistent regulatory approach to the broadband market, regardless of the technology used or who provides service. Sound policy will encourage investment in the new, digital broadband technologies as multiple providers strive for competitive advantage.

Verizon works closely with the FCC and the various state regulatory commissions in pursuit of a new direction for telecom policy, including new rules for broadband that will restore investment incentives in the industry and encourage robust competition between CLECs, telephone companies and cable companies and others, which vie for residential and business customers by selling innovative services over advanced networks.

In the words of Verizon's CEO, Ivan Seidenberg, "the basic challenge in the last decade has been to reinvent ourselves around two disruptive technologies: wireless, which we saw right away; and the Internet, which took us a little longer."

Well, we get it now, and we're investing billions of dollars a year in data because we know that everything with a digital or electronic component can, and eventually will be connected to the Internet. Under this new paradigm, our network becomes the platform for a whole host of new applications, provided by us and others, and our investment provides a needed stimulus to technical innovation and entrepreneurial activity across the whole high-tech economy.