20101207_transcript

F I N A L T R A N S C R I P T

VZ - Verizon at UBS Global Media and Communications Conference

Event Date/Time: Dec. 07. 2010 / 1:00PM GMT

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C O R P O R A T E P A R T I C I P A N T S

John HodulikUBS - Analyst

C O N F E R E N C E C A L L P A R T I C I P A N T S

Ivan SeidenbergVerizon Communications Inc. - Chairman & CEO

P R E S E N T A T I O N

John Hodulik - UBS - Analyst

Good morning. Thank you all for coming. My name is John Hodulik; I'm the cable, satellite and telecommunications analyst hereat UBS. And I want to welcome you to day two of our global media and telecom conference.

I'm very pleased to introduce our first speaker and keynote for this morning, Ivan Seidenberg, the Chairman and CEO of Verizon.Ivan has been CEO and Chairman of the Board since its founding more than 10 years ago as part of a career in thetelecommunications industry that spans more than 40 years. He's also currently serving as the chair of the Business Roundtable.Thanks for joining us this morning, Ivan.

Ivan Seidenberg - Verizon Communications Inc. - Chairman & CEO

Okay, John. Good morning. So I understand this will be Q&A?


Yes. We're going to do about 40 minutes of Q&A and then open it up to the audience for --


40 minutes of Q&A? Okay. Right, okay. It's gotten my day off on a good start here.


Exactly. Ivan, you've recently finalized a number of management changes that put in place the leadership for the next severalyears. Do you expect much in the way of change as it relates to the strategy, either financially with Fran, or operationally withLowell in the new positions?


Well, look, all the changes we've made have been part of the Board's natural pacing of the succession. So the last three or fouryears we've moved a lot of people, a lot of people have retired, we've moved new people into place. Even this morning we hadan announcement -- our CTO -- CIO, Shaygan, is leaving to take a job in Europe, becoming the Chief Operating Officer of Barclays.So we've had a series of changes.

I think, John, all I would read into all of that, it's pretty much all assumed planned. My job is to put in place the team for the nextseven to 10 years. The last step of that process will be when I retire in the second half of 2011. And, as far as changes are

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Dec. 07. 2010 / 1:00PM, VZ - Verizon at UBS Global Media and Communications Conference



concerned, I don't see any major shifts. I hope that Fran, who is sitting there, and Lowell will pick up the mantle and add theirown dimensions to things. So I think changes are constant, but I don't think there will be any significant pivots that I can sensein the next year or so.


You've done a lot to reposition the Company over the last few years, focusing mostly on the growth-oriented businesses, in thetime that -- the next few months that you have left with the company, is there anything else that you feel you need to do, bothin terms of either divestitures or acquisitions, to continue to reposition the Company, or is that something that we can expectfor the next --


Look, I don't think managing a portfolio is anything -- something that's ever finished. I don't see any big shifts, though, in wherewe are. I think we've spent a lot of capital in the last, say, 10 years. The key was for us to shed ourselves of those assets thatweren't necessarily strategic to creating the organic growth, to get a big return on those assets.

So I think we've done most of that. We are happy with our portfolio. There isn't much, in our judgment, domestic consolidationleft for us. So I don't see -- there could be little things here or there, but I don't see anything major in that regard. So no; I don't-- there's nothing that's on our plate that has to get done in the next six months or so. And I think it's a question of letting thenew team feel its way through and decide what the new growth strategies could be beyond the organic management of whatwe own.


The big topic yesterday with a number of providers was 4G, and on Sunday you launched the LTE across 100 million pops, alarge, meaningful part of the United States, all the NFL cities. How do you characterize the initiative? Is this sort of just anotherstep in the evolution of the wireless marketplace, or is it something more fundamental in terms of change?


Well, 4G to me is -- it's a huge step function forward. It's a game changer. So let's just put this in perspective because there'sbeen so much written about it. And those on the leading edge think they are on the leading edge. Those who aren't on theleading edge suggest that it's not a big game changer. So let's look at this from our Company's standpoint.

There's no question that, as we look out into the future, Verizon itself has done a fairly good job at managing the CDMAtechnology and the spectrum we owned. And so we think we've carried that a long way. We've got a good business model,we've got good returns, we have good growth. And even in the current environment, where we see AT&T had pulled ahead ofus in smartphones, we still did fairly well over the last two or three years.

We pushed hard on 4G because it had network characteristics and, we think, feature and function that was game changing.Plus, in our case, it significantly expands the addressable market for us. And you create the ecosystem around it. So when wethink about 4G, it's not just the speeds that you get, but when you think about the latency associated with 4G, it's almost landline-like, in a lot of regards. What you can do with your network -- you can own more than one device on the same number, youhave the capacity to bill peak off-peak, you have the capacity to build around consumption, you have there capacity to capspeeds for customers. There's so much capability inherent in this that, as the ecosystem starts to center around 4G, what you'llfind is just an explosion of opportunity and things that people can use in terms of applications and all sorts of other kinds ofservices.

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So we look at 4G as a game changer. Now, we just turned it up Sunday, yesterday. Today is Tuesday? I guess, Sunday, we turnedit up. So just -- so it's clear, we turned it up in about -- a little over 60 markets. But importantly, in those 60 markets we haveabout 70% coverage. So it's not like we turned up one tower. It's about 70% coverage in those markets. It's, of course, backwardintegratable with 3G across our network.

And I would say that every month for the next 24 months, we will be turning up more servers in more locations, includingadditional coverage in some of these markets so that, by the end of 2012, we will be heading into 2013 pretty much 85% or socoverage in the country. So our view is the rapid deployment of this technology is pretty extraordinary.

You know, we turned the service up. We've done our own trials. Average throughput speeds average 8 to 10 Mb. Early userswill see much higher throughputs because the system are not loaded. But think about it, 8 to 10 Mb on a device is prettyinteresting.

Now, the other issue that people talk about with 4G is whether the devices will be there at the same time. Almost all of thenetworks that we've turned up, the first thing has always been the USB cards and the air cards and things of that nature. Sowhat you'll find is, hopefully, starting in January through June, there will be a sequence of devices that will come out fromdifferent manufacturers. There won't be as many choices as you have today, but there will be some choices. And then, our viewis by the middle of 2011, toward the latter part of 2011, you will start to see a proliferation of large numbers of devices. And, bythen, we will be much more deployed beyond the original 62 markets.

So we're feeling very good about this. But the inherent power of this technology is going to make everybody in Silicon Valleyhappy. It's going to make all the manufacturers happy. And I think it's going to send all the app developers into heaven becausethey are going to love doing all the stuff that you one would do on a network of this capability.


We bought the service on Sunday, I've been using it in the room here. During lunch yesterday, I was getting between 18 and19 Mb per second downstream. And then last night up in Westchester I was getting between 13 and 14 Mb per second.


That's good. You know what I told him? He had to move. Go to a location where you get 18 to 19 all-time. But 13 or 14 Mb persecond -- that's pretty extraordinary. Right, exactly.


I guess the follow-up to that is, there's a noticeable difference, even versus the land line service. Is the network ready for thetype of traffic that you're going to be generating with that? Video was loading instantaneously on YouTube. Are you sure thatyou've gotten the infrastructure in place to handle the volume?


Well, this is why succession is so important. I'm sure Fran and Lowell are going to make sure this works.

Yes -- no, were sure. Look, we have been stressing this and testing it forever. We are very focused on this. When we went from1G to 2G, we got the same questions; went from 2G to 3G we got the same questions. I think it's a constant issue of feedbackloops and adding carriers and making sure the networks are there. But I think, if you look at the pattern of our capital spending,

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we have made sure that we have kept our capacity current with what we think the projections are. And I think we have thecapability of doing that. So, yeah, we are very excited about it, and I think we will be in good shape for it.


Along with the announcement that you're going to launch 4G came the new pricing for data cards. And I think we're all trying-- anticipating what the price for 4G handsets will be next year, when they are available. I know you can't tell us exactly whatyou're going to do there. But how would you characterize that versus what we've seen in the 3G world?


Well, this is an issue where you have to get some experience and learn. So we've put a couple of price points in the marketplacewith our air cards, and I think the most important one is to take a look at the fact that we are looking at the $80 plan for 10 Mbs.And I think what we need to get the market conditions to understand that the -- there will be higher average usage per monthon the part of customers. And so -- our view is that plan looks to me like a floor of what people will do.

Now, initially it's difficult when people think they can get unlimited at a lower rate at 3G service. So the trick, though, is not toprice too high to scare people off the service, but also to price high enough that, as applications and as services start to fill in,what people will do with this stuff -- they will see the value and then people will pay for it.

So I think we've set a price that we're signaling is a value proposition for us, and that's a place to start. And our view is we needto lead on this issue because the tendency will be for some others in the industry to pull us down on that point. And so I thinkwe have to hold firm as best we can until the entire environment is mature enough and we have devices and services andeverything else where people can see the value.


2011 is shaping up to be, I think, a very good year for Verizon in wireless. The launch of LTE, the handset availability as we movethrough the year, and there are many people out there that -- there's a new iconic device that may make its way onto the Verizonnetwork early next year. I'm not going to ask you to comment on that, but from a revenue growth standpoint we've seen someservice revenue growth acceleration the last couple quarters. Do you expect this to continue and -- both from a subscriberstandpoint and from an ARPU standpoint? And could we get to the point where we are seeing double-digit service revenuegrowth again in wireless?


Well, I'll leave the projections to Fran. So I think we compensate our people to get our growth up, so there's no question there.But here's the way I would answer that. Our performance in 2010 -- we started the year at smartphone penetration around 15%.End of the third quarter, it was 23%. Data as a percentage of our revenues is in, I think, the upper 30s at this point. So we are inthe mid-30s, upper 30s.

So we've had good success this year, better success than we've had in previous years. Fourth quarter is shaping up decent,good. So I think you will see the trends continue in the fourth quarter.

So, to your point, I think the proliferation of more smartphones coming from a variety of manufacturers -- I think the developmentof applications and now what we are starting to see is the beginning of a service architecture around clouds, around things ofthat nature. So I think that the data growth and the smartphone growth looks very strong to us over the next couple of years,so it's not just 2011. I think it's a shift.

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And then I think tablets, when you add on top of that -- so we sort of get the scale right on tablets, the pricing and all that kindof stuff right, I think there's an opportunity for the entire industry to do much better in the next two or three years. And youcan watch growth accelerate.

So in your terms, the terms that people who cover the industry like, what I think is that we should be thinking about penetrationrates that are no longer 94%, but maybe 394%. So I think you're going to see people with multiple devices and all pretty, I think,robust devices. I think the whole machine-to-machine issue gives you another layer of devices in this thing. I think 4G will createthis whole video approach to mobile, so that will add a lot of excitement and get people to buy bigger data plans.

So, John, I'm looking at not just 2011 but the next two to three years of being good for the whole industry. And I think in ourcase, we are well-positioned, so I'm looking at -- that I'm excited about the prospects for our Company.


You mentioned developments in the cloud and the connectivity there. As the wireless market evolves and companies like Apple,Google and even Facebook get involved more and more in wireless, how do you make sure that the wireless carriers are notdis-intermediated and that the value doesn't shift away from the carriers and towards these other entities?


Well, so I get this question a lot, and I'm always amazed at it because the last time I looked we're above 45% EBITDA margins,net margins somewhere in the mid-20s. So I don't know; it seems like we are okay. So I think that the device guys have done agreat job because they are extracting a pretty healthy subsidy to sell their device.

So I think, in the long term, the way I see it, is that we have a great partnership with the device guys. This morning, Google isintroducing another kind of iconic device. I thought that's the one you are talking about. Right? The Google one, right -- soanother set of devices. So I think in the long-term what happens is we exploit 4G, we develop healthier data plans, video comesin, we get lots of applications through the cloud and through our service architecture. Eventually, in our judgment, devicesubsidies come down because the cost of handsets come down. I don't think that's a phenomenon that occurs in the next yearor two, but certainly over the next three to four years that is the pattern. The cost of the consumer electronics will start to comedown.

So we make that happen because we encourage multiple platforms on our network. So we like the idea of a healthy ANDROID,we like the idea over time of a healthy Apple structure. We love the idea of a rejuvenated RIM. And even Nokia is thinking aboutdoing some things to get themselves back in the game. So 4G, I think, changes the model and it creates what I think is anopportunity for the service provider like us to retain our position in the value chain in a way that doesn't completely eliminatethe value that we think we have been building over time.


So is a mid-40s EBITDA margin still the right way to look at this business, even as it evolves? We've moved from sort of a traditionalpostpaid model to connected devices and maybe devices with smaller ARPU and more data intensive.


Well, the way to look at that question is that there has never been a conference I've been to when I haven't been asked thatquestion in the last 12 years. Okay? And so, the answer has always been, we are keeping it there, in spite of what everybodysays. So our view is that we are an -- and -- company, that over time there will be opportunities for a growth spurt, we will seize

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it, but then we will level-ize back into a business model that sort of suggests that we think that we should be well above 40%,in that mid 40 range in terms of a business model. So it doesn't mean every month, every quarter. But it does mean, over time,that's what we do.


And maybe switching gears and shifting over to the wireline side, the wireline margin trends seem to have turned as well. Isthe improvement we've seen throughout this year from a wireline standpoint -- is that improvement sustainable? And givenwhat you're seeing maybe in the business market and with the economy, when can we expect revenues to follow suit?


So wireline -- you know, everybody has one of these crosses to bear, you know, when you're running through this. So, to behonest about it, as I approach 2011 I think I feel better about where our wireline business is right now than I probably have inthe last five years.

So why do I feel better? So here's a couple things that's going on. I think we've gotten to the point where we've, from ourjudgment, we have managed the portfolio. So we have the assets that we want so that -- so, on average over the next, say, yearor so, we'll end up settling -- 65% to 70% of our lines will be covered by FiOS. We are very comfortable with the FiOS product.We have, in effect, gated the opening of new franchises. We've worked harder at making sure that we exploited the marketsthat we are in. FiOS revenues are about half of our consumer base.

So we're getting close to the point where at least FiOS itself can offset the core dilution that comes from loss of access lines andloss of voice in those markets. And so even that is abating a teeny bit, but we are feeling better that at least the core of that isworking in the right direction. So revenues from there will continue to get better. Our FiOS product is sort of transforming sothat the TV and the Internet are beginning to be the same product. So I think we have a little different view than -- or at leastdifferent capabilities than all the cable companies, because I think over time we see the Internet and the TV almost convergingto the point where it's a unified set of products and services so you can get a lot of things over that TV Everywhere, over-the-topofferings, significant speech that we can offer in FiOS. And we are feeling good about that.

Now, on the enterprise side I'll answer this both from a revenue and a margin standpoint. So on the revenue standpoint, Franand his guys took some steps to improve the profitability of the current revenue stream. So in effect, on the wholesale side, weexited some markets, we changed some prices, cost ourselves a little bit of revenues the last couple of quarters, but significantlyimproved profitability. So I think that's good. I think we have a significant push now in managed services, managed strategicservices. So we are starting to see a little traction in the last few quarters. We've seen some good growth in those markets, somepositive. So I believe we're starting to see some organic pickup in that. That will be heightened with some movement in theeconomy, naturally. It's a little more cyclical than we would like, but it's cyclical. And I think we are going to get some attentionon the economy now. We start to see that. Even this morning, through things going on in Washington.

So I think, from that standpoint there, we are seeing enterprise in a good spot. Now, on margins -- you didn't ask this, but letme just comment. Remember, when we bought MCI, MCI's margin was probably a third of what T's was. So we started from abase here, and then we've moved that base up much higher. We also, because we spend so much on FiOS, diluted our naturalrun rate there. So our margins were under attack from two sides, the math of just integrating MCI and the significant buildoutthat we've had from FiOS. So now when you look out over the next two or three years, and you saw it the first year in 2010, Ithink capital efficiency gets much better on the FiOS side. So that's a good thing. And then you start to see the improvementsthat we have made in integrating the MCI asset, and we are starting to see those margins move up.

So I think the last couple of quarters we've gotten to a point where we stopped eroding. And so our view is, I think we can buildfrom that both on the revenue picture and on the margin side.

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So in the final analysis, what will make for a healthy wireline sector is revenue growth. We can continue to cut costs to stayahead of the curve. So on that front, we are excited about enterprise and we are excited about the continued evolution of theFiOS revenue base.


Can the FiOS business continue to grow after -- now that capital is coming down and your deployments are nearing an end ofthe plan? Can you continue to drive penetration? You've had a lot of success so far, but is that something that --


The original business case -- this was five years ago, you know -- was mostly proven in on expense. We thought, if we got 25%data penetration and 24%-25% video, we would be happy. I don't think Fran and the guys would be happy with that level ofpenetration now. We've already broken 30% in markets that we've been in 24 months. So I'm looking at, personally, and I cansay this because I'll be writing letters in two years back to the team, asking them these questions. But I don't know why thatpenetration couldn't be in the 40% to 50% range in markets that we've been in for 24 to 36 months. I don't see it. I don't seewhy we can't do it. The product is outstanding, and so I think the key for us is to fill out the footprint that we said we would,and then, within those footprints, really drive penetration up to the 40%-50% level.

And in 2010, we ran counter to video. I think we grew video ads this year. So I think we feel comfortable we can do that.


In the past you've had some comments about over-the-top and the threat to the traditional video model. Does that play toVerizon's advantage, given the FiOS infrastructure and all the bandwidth that you bring to the table? Do you see that as a threator a potential opportunity in your FiOS markets?


These kinds of things always initially appear to be a threat, but in the long-term they are always opportunities because themarket is going to do what the market does. So we've always believed that the superior speeds that we can offer and the superiorcapabilities in terms of feature and function would enable innovation to occur at different points in the value chain. So I thinkover the top is a good thing because in the long-term it's going to distribute more content, more applications, it's going torequire more bandwidth. And so I think in the long-term you need to do that.

I think the unique issue that we have in the FiOS business model, and the cable guys have the same thing, is how to transitionall these content contracts and how you deal with that. But that will get sorted out over time. I think right now their embeddedbase is a bigger sort of target. We don't have as big a target on that, so I think that we could -- we could be a little but moreflexible on how we think about migrating FiOS to a futuristic view of having both bundles and over-the-top utilizing thecapabilities.


What about investments out of region? It sounds like you are being very -- the capital that you are spending on the wirelineside has started to come down and it looks like it's going to come down pretty -- I won't say dramatically, but continue to comedown again in 2011. Are there any investments you need to make out of the FiOS territory to maybe extend the life of the DSLinfrastructure? Is that something where it makes sense to spend some incremental dollars?

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No.


Okay. Maybe turning to what the events in Washington, over the last couple weeks it seems as if the environment has improved,and right now the FCC is, without going into it, working with do we do Title II or not, and now it's shifted to the extent that theyare thinking of, do we do any kind of net neutrality or not.

What is your view of that change, and how do you see that shaking out? And how important is it?


Well, do you want me to answer the previous question a little bit more? This DSL question is sort of -- I don't know what it is;it's kind of a learning disability on the part of analysts. Right? You knew I couldn't help myself, eventually, attacking these guys.Right?

So, look, when you look at our footprint, 30% of our lines will be non-FiOS. It's not a big piece of our action. We are not lookingto extend that beyond the franchise territory we have. We are spending plenty of capital across all of America on 4G [on things].So we don't have the landline exposure that anybody else has, whether you're a rural carrier or any of the other -- or even ourcousin T -- we don't have that kind of exposure. I've spent the last six or seven years not having that exposure.

So we don't have a reason to reacquire things that aren't necessarily, to us, strategic. Right?


That makes sense.


Are we good?


Yes.


Have you got it now?


We're good, we're good. I'll move my cable broadband (multiple speakers) a little.

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So let's get back to the FCC. So FCC -- look, the net neutrality issue was extremely important to us. And we went to the sourceof that, which was Google. And I think, over the course of the last year, we've come to a good accommodation with them onthe basis that their position -- there should be no blocking and no restrictions put on people navigating through the Internet-- is a fair point. And we've never shied away from that.

What we didn't like was the extension of a rubric of rules and all these other things to enforce it that went well beyond thedisease. So I think we've demonstrated to Google that we are willing to step up, the five principles, we've put it on our website.I would just point out that we're the only company today that lives by this because we posted it on our website and we do all-- those other companies probably feel they do it, but we have been right up front about doing that.

So the FCC comes along and they feel like they need to codify some of this. And we are always worried about unintendedconsequences of rules that go beyond what they have. So recently the FCC just adopted an order. No one has seen it, so peopleare running around saying, we agree with it or disagree with it. I find that all very interesting. I haven't seen it yet. I don't thinkanybody has seen it. So until we see it, we don't know.

But the screen that we'll put through it is the same screen that we had put through it before. We don't want to take the futureof the industry and shoehorn it into a Title I or Title II Rube Goldberg that doesn't work. So we've got to see that. Managedservices are different. We have to make sure that we do offer unfettered, nondiscriminatory access. We have to be able tomanage our traffic and there has to be innovation around uses of the bandwidth that wouldn't be frustrated by rules that wouldsuggest all of the traffic on the network is exactly the same.

And then we think wireless is different, that there should be no blockage to websites that people want to get to. But spectrumis a scarce resource, and it has to be managed a little differently than the rules that would apply to the land line. So I think thatwe are happy to cooperate, to make sure that there is a rule of law in the industry. But Verizon is still in the position that weneed to see it first and we need to read every footnote to make sure that there aren't any unintended consequences of this,and we'll see that soon enough.


But given how this issue has evolved, and what you are seeing as chairman of the Business Roundtable, are you -- do you thinkwe are in a better place as it relates to regulation in general? Do you feel this is a sign that the administration is moving moretowards a pro-business, pro-growth type sort of situation than what we've seen maybe over the last couple of years?


It's an interesting question. You know, we have a Business Roundtable meeting tomorrow, so we're going to all descend onWashington. The last three or four Business Roundtable quarterly meetings, which is our -- it's our big deal, there have beenrecord numbers of CEOs that -- we've had 60 companies join the BRT in the last 12 months. We will have well over 100 CEOsthere tomorrow, which is unheard of.

So people are focused on this, I know. So let's get at this. So if you get at the labels, is the administration now pro-business?Here's what I would say. I think that to achieve what the administration set out to do, which -- I'm paraphrasing this, but it's notfar off -- which is to correct what they saw was overly aggressive behavior on the part of many industries, starting with financeand maybe the automotive, and then you go down to all the industries, the food industry, the energy industry. So there was awhole view that if government could rein in that behavior, that would produce a fairer distribution of wealth and it wouldimprove what consumers were able to purchase and experience in the marketplace.

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So here we are couple years later. I don't think the administration has changed its view that there needs to be more aggressiveoversight. But I think what they have figured out is the mechanisms to create wealth need to rely more on the private sector.So I think what we've gotten the attention of is that the private sector has to figure out ways of creating domestic work, growthin this country at the same time people are expanding globally. But at the same time, we have to make sure we don't inadvertentlyrepeat some of the things that people perceived were the excesses of the 1990s and early 2000s.

So I think we are in a better place. So I think the conversation is better. The President made a speech yesterday in North Carolina.I don't know if anybody had a chance to read it. It was to a technical college. I think it's Forsyth Technical College, so he talkedabout globalization, all sorts of business partnerships with the private sector. If you flew in from Mars and just read that speechand then you picked up something from two years ago, it's like two different guys.

So I think the good news is, the President intellectually understands. So I want to be fair. I don't think he's given up on his ideaof a fairer distribution of wealth, but I think he has figured out he needs the private sector to create that wealth, to do that.


Just lastly before we open it up to questions from the audience, could you just briefly describe the current relationship withVodafone? And again, from a cash flow standpoint, that business, the wireless business is pretty significant, as we talked about,a tremendous amount of cash every year and still growing. I think the messaging from Verizon over the last six months hasbeen that, obviously, if you just do the math, at one point or another there will be some disbursement to the partners.

Do you anticipate the existing relationship changing before your tenure at the helm is --


No, I don't -- I don't even think about that anymore. Look, I think the relationship is good. As a matter of fact, Lowell is over thereright now meeting with Vittorio and his team. Look, I think it's important to put this in perspective. Verizon Wireless, in my view,has done a really excellent job for both its shareholders over the last 12 years. I don't think there's any question about that.There has always been this constant issue of, so what do you do with the cash as you develop it?

And, look, our view has always been, our first option is to reinvest it in Verizon Wireless and keep growing the asset and keepproducing good returns. And even though they don't get a cash dividend, their paper profits are pretty strong. So I think we'vebeen down that road. We have now reached a point where people perceive the scale of Verizon Wireless is producing so muchcash that you can't spend it all. Okay, we got that.

By the way, that has been the argument for 11 years, and for 11 years we've always found a way to spend the cash. But havingsaid that, I think Vittorio has got this right. He has basically been messaging out that the next meaningful discussion aroundthe future distributions of cash will come at the end of 2011. I don't see much change between now, and you can write thatdown. I said it, you got it. So there isn't going to be much change in capital structure or distribution policy over the next 12months. I think we've got a lot of things to do. We are paying down our debt.

But it's fair to say that, at current course and speed, we should have a discussion next year about what happens in 2012 and2013. And I might add, there are a range of options that could happen, and it's something Fran and his team are working on,and they will sort that out as we get through 2011. But I don't see anything that needs to happen in the short term.


There are some microphones, I think, in the back of the room for anybody that has a question.

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Unidentified Audience Member

Can you talk about LTE as a competitor to cable in the home? You mentioned pretty high speeds there. Is that a better competitorthan DSL? And what about markets where you are not the incumbent? Would you look to use that as --


Okay, I missed the very first sentence.


LTE as a competitor to broadband in the home.


LTE as a competitor in the home to --


Broadband.


Broadband? Okay, so I think on the margin, there will be some substitution. I wouldn't doubt that. I don't see -- at least ourengineers don't tell me yet that LTE displaces a full cable system or a full FiOS in the home. But here's what I do think happens,and it's what has always happened with new technology.

I think customers will use combinations of technology to, in effect, reduce some of the growth that you would see. So I thinkwhat will happen is people will figure out they don't have to buy, for example, expensive voice service from a cable company.They can use their LTE, and they can use the cable company's broadband pipe for over the top.

So I think what you will see is, on the margin, some of the growth that exists in the existing platforms will change. By the way,that also applies to FiOS. We think some of that will happen in FiOS. And what our solution to that has been, of course, is higherspeeds, 3-D, things that LTE can't do. So I believe that in the next year or so you will see some substitution on a limited basis.But more, you will see the things you can't see that will occur. And you will see 4G starting to take away some of the discretionarygrowth that comes from -- this is the reason I think that, while I got into a little hot water last conference because I talked aboutcord cutting. And if I actually defined it a little differently, so the cable industry says, well, we haven't seen any signs of cordcutting. Fair enough.

But my guess is you're going to start to see signs of growth slowing down in some of the premium services because people aregoing to use alternative technologies. We've seen this movie before, and we see exactly how it works out. So I think, in time,4G will be a modest substitute.

Now, by the way, last Seidenberg rule -- when you look at the introduction of all these new technologies, this is a pattern thathas followed for the last 20 years. So the first five, six years a new technology is introduced, it's generally additive. So 4G willgenerally be additive, just like 3G was, just like broadband was. But over a three- or four- or five-year period, you start to seethe mainstream of that technology become somewhat substitutable. And we've seen that over the course of the time.

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So now the question becomes is, what year are we in, in wireless evolution? So I don't think we are in the first year. So I thinkit's a question of what year we are and where we go through that.


Ivan, looking down the road a little bit, even past your retirement -- and I forget whether you are staying on the board or not --can you talk about what Verizon's view is international, particularly given the fact that US is only -- less than 5% of the world'spopulation?


So the question is about Verizon's --


International opportunities for Verizon, even -- next 10 years, 20 years.


So if I look back on my tenure and I look at what we did and what we didn't do, so I spent -- and John Diercksen is here as well,and Doherty here is, what he did the same thing. So we spent 10 years becoming everybody's best friend in 30 countries, andwe ended up with all these partnerships and 23% interest here, 5% interest there. We made money on it, but we never scaledand it didn't work. So we got out of it. Okay?

So then the next strategy was, we bought MCI. So we do feel that we are a global business. We operate in 130-somethingcountries. We have locations in many, many major markets. So our focus right now is to take advantage of our global network.And, remember, MCI was one of the few companies that owned facilities intercontinental that just didn't start one and in theUS. So they are a truly global carrier, like BT is, to some extent.

So I believe that in the next couple of years, when you think about cloud services, data centers, managed services, all thesekinds of things, I think the assets we have in place will let us scale and grow globally.

Now, on the consumer side I think that's a story that is yet to be developed. And I think that this is a marathon. Okay? We finishedthe first 26 miles. Someone else is going to figure out what that means over the next four or five years.

My view is, I don't there's anything imminent or obvious, at this point. But I think we can do real well with continuing to developour enterprise business, which has global characteristics. It's not country specific, and it's not government mandated or controlled.So I'm really happy with where we are on that score. I hope that helps.

I'm a globalist by nature. But the thing is you've got to skin the cat a couple different ways, and I think this is the way we'vecome at it.


Ivan, you have been a big supporter of our conference over a number of years. And, given the new succession plans, this maybe your last appearance here at the conference. So in leaving us here, under your watch you've seen a tremendous amount ofchange in the industry from when you started in this business 40 years ago.

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Looking ahead, in your opinion and given your view of how the industry is going to change, what do large global players likeVerizon need to do to continue to be successful and to continue to create value for their shareholders over time?


Well, I think it's the things that we've talked about. First of all, there's no question. The question that we just had here is absolutelyimportant. I think organically we have to continue to have the courage to make those investments that will generate verticalgrowth. So you can't cheat. When you think about our industry, the idea of competition was always government-sponsoredentities that arbitraged the two or three major companies in the industry.

So I think we've gotten through that. Like for example, just reading about Sprint's view now that it's going to clean up its view,transition away from iDEN, move toward a more robust 4G platform -- look, I'm not here rooting for Sprint. But the idea thatthey would take those steps long-term would suggest to me our industry is reaching a stage of maturity where we are notlooking back at government to bail everybody out and managements are taking accountability for the future of what they needto do.

So the sustainability of our capital investments, the sustainability of our dividend are very important. Okay? Now, growth -- Franand Lowell are going to have to build some growth and buy some growth. We bought growth through mostly horizontalmergers, which gave us a little bit of growth, mostly earnings came from costs. So I think the future is going to require us tohave Verizon look more like Verizon Wireless. So I think, at this stage, as you get to the end of 2011, I don't know what the exactmath will look like, but roughly you all do the math. You are looking at 75% or 80% of the business will be wireless. Right? Andit will continue to evolve that way. And then the wireline business will start to see some growth.

So I think we need to be a Company that breaks the barrier of 4% or 5% consolidated growth. It's not a number that I'm suggestingwe make right away, but it's one that we get to. So I think managements have to take the step to do that. We have to becomeglobal in the process of doing that as well. Okay?

So I think we have the operating smarts and we have the experienced people that know how to lever the assets once we getthem. So I think, for us, it's finding those sustainable sources of growth that will do that.


Great. Thanks for being here this morning, Ivan, and thank you all for attending the conference.

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