Get ready for Verizon's 'Dream Phone'October 29, 2010: 3:00 AM ET
The soon-to-be-unveiled Verizon iPhone is the answer to many consumers' prayers. But a deal with Apple will test the company that Ivan Seidenberg has spent his career building.
By Sarah Ellison, contributor
The most talked-about cellphone in America is one that doesn't officially exist: the Verizon iPhone. Ever since the 2007 launch of Apple's iPhone -- which crippled swaths of AT&T's network -- consumers have yearned for a Verizon iPhone as if it were the Second Coming. When Verizon Wireless, the nation's largest mobile-phone operator, recently agreed to sell Apple's iPad tablet bundled with a MiFi card that works on Verizon's network, tech analysts and media were abuzz with speculation that the real news -- the announcement of the much-anticipated Verizon iPhone -- was in the offing. "Apple and Verizon Wireless finally are getting it on. But are there bigger plans in the works?" tech site Appolicious asked after the companies announced their iPad pact. (The answer: yes. Fortune has confirmed that a Verizon iPhone will be released in early 2011.)
That so many Americans covet Verizon (VZ) iPhones --analysts estimate that Apple (AAPL) could sell 8 million to 9 million of them next year, compared with an estimated 22 million iPhones sold to date in the U.S. -- is partly a testament to the efforts of Ivan Seidenberg, who has presided over one or another of Verizon Communications' predecessor companies since 1995, when he became CEO of Nynex. From that perch Seidenberg has transformed a boring, lumbering, $13-billion-a-year in sales phone company into a technology giant with $108 billion in sales last year. He did it through a series of acquisitions and a particularly shrewd wireless joint venture with U.K.-based carrier Vodafone, which today serves an industry-leading 93 million U.S. customers, many of whom have disconnected their Verizon landline phones in favor of an all-mobile existence. "One of Ivan's great strengths is he is not afraid to cannibalize his own business," says Blair Levin, a former chief of staff at the Federal Communications Commission and now a fellow at the Aspen Institute. "What Ivan did is as if GM 15 years ago decided to be the world leader in electric cars and today was that leader." (In late October, Verizon Wireless agreed to pay the government $25 million -- and reimburse customers -- for fees improperly charged to approximately 15 million customers.)
Seidenberg, 63, is the longest-serving CEO in the Dow 30. But he wasn't groomed for the corner office. He started working for New York Telephone straight out of high school. "At 19, I was draft status 1-A," or eligible for military service, Seidenberg said in a recent interview at Verizon's corporate offices in Basking Ridge, N.J. "Only two companies in all of New York would hire me: Con Ed or a telephone company." Shortly after accepting a job as a cable splicer's assistant, the Bronx native was drafted and sent to Vietnam, where he served in the Army for two years before being wounded at the battle of Khe Sanh. He returned home, started at the phone company, and began night school; over the course of 16 years he got his bachelor's degree from the City University of New York and his MBA from Manhattan's Pace University.
As many rivals and partners have learned, it would be a mistake to underestimate Seidenberg because he's worked for only the phone company. He has built an empire so vast -- and so indispensable -- that virtually every tech company, from Google to Microsoft (MSFT) and now Apple, must find a way to partner with it. Indeed, he has consistently outmaneuvered his opponents and turned erstwhile enemies into allies with characteristic quiet intensity. Earlier this year he even persuaded Google to issue a joint policy framework supporting Verizon's right to prioritize traffic on its wireless networks, altering Google's long-held stance that all data should flow freely on wired and wireless systems. Sounds geeky, but trust us, it was a huge coup for Seidenberg.
While much of Verizon's growth has come from the acquisition of other telecom companies, Seidenberg has shown a willingness to take risks too, investing $23 billion to deploy fiber-optic lines directly to consumers' homes to offer faster Internet and cablelike television services under the FiOS brand. Yet he still has a chip on his shoulder, especially when it comes to the cool kids of innovation. "It's easy for the Silicon Valley companies to look at us and say we have a low IQ," Seidenberg shrugs. "I think the world has changed, and they see a lot of investment that goes into networks and into developing products and services."
The forthcoming Verizon iPhone will test those investments. As noted, wireless data usage on the device is a major burden on AT&T's (T) network; iPhone users who complain about AT&T service don't always realize how much they contribute to the strain, partly because the iPhone persistently reaches out to AT&T's towers, switches, and computers to grab data. While Seidenberg wouldn't comment on the iPhone specifically, he and Lowell McAdam, his operating chief and heir apparent, seem confident the Verizon network will hold up. McAdam points out that Verizon already carries a data hog of a phone, the Motorola Droid (which runs on Google's (GOOG) Android operating system), and that the average Droid user consumes more data than the average iPhone user.
But there are vastly fewer Droids on the Verizon network (the company won't say how many) than iPhones on AT&T. And when the iPhone arrives, Verizon's network --billed as the "nation's most reliable" -- will be assaulted by millions of data-hungry users downloading apps, watching videos, and yes, even making phone calls. First in line to buy will be many long-suffering Verizon subscribers, who probably feel a little like Cubs fans in a crowd of Yankee supporters whenever they're around their iPhone-wielding friends. But AT&T can expect some defections too. Some 18% of AT&T iPhone users surveyed by Credit Suisse said they'd consider switching carriers if Verizon got an iPhone. Says current iPhone user David Geffen: "I can't wait to get the iPhone with Verizon."
Seidenberg's soon-to-be-unveiled Verizon iPhone almost didn't happen. Verizon executives say they passed on an opportunity to be the exclusive network for the phone back in 2005 largely because they felt that Apple and CEO Steve Jobs wanted too much control over how and where the devices would be sold -- and too big a cut of the monthly service fees. Verizon didn't want to give up maintenance of its devices or its relationship with its customers, and it sought to distribute the phone through multiple retail partners. So Apple went with AT&T, of course, and conversations between Apple and Verizon about a phone essentially ceased for two years.
Seidenberg broke the silence. In the spring of 2007, months before the iPhone launch, he secured an audience with Jobs at Apple headquarters in Cupertino, Calif., and asked, "Why are we in your doghouse here?" It turns out that for all of Verizon's concerns about ceding control and sharing fees, Apple was wary of building a device for Verizon's CDMA network because it didn't use technology that allowed a phone to seamlessly operate around the world, as AT&T's network does.
Seidenberg tried to reassure Jobs that Verizon was quickly building a faster 4G (fourth-generation) network, one that would work globally. He also tried to convince Jobs that Verizon had a superior 3G network to AT&T's. Jobs listened politely, as Seidenberg tells it, and agreed to stay in touch. Apple declined to comment.
In June 2007, AT&T and Apple launched the iPhone to great fanfare -- but it didn't take long for the service complaints to start rolling in. By September, when Apple dropped the price of the device and demand soared, AT&T and Apple were fielding complaints about dropped calls and network delays for iPhone users. McAdam, who was CEO of the Verizon Wireless joint venture at the time, went for the kill. (For more on McAdam, who becomes Verizon CEO next year, see box above.) He called Jobs in December 2007 and told him, "We really ought to talk about how we do business together. We weren't able to [reach an agreement] a couple of years before, but it's probably worth having another discussion to make sure we're not missing something." Jobs, according to McAdam, replied, "Yeah, you're probably right. We have missed something."
The first fruits of those conversations? Flash-forward to this October: Verizon has started selling iPads that run on Verizon's network. (AT&T has a similar deal.) The next step, the iPhone, remains shrouded in secrecy, and neither company will discuss it. But people familiar with its development say it is a fait accompli. Verizon, sources say, will sell its own version of the iPhone 4, which will work on Verizon's CDMA-based 3G network. Unfortunately for globetrotters, the first version of the phone likely won't be built to work outside the U.S. -- it probably won't carry a special chip that can turn it into a "world phone." However, it may have some of the features on the iPad distributed in Verizon's stores, like live TV for customers of the FiOS cable service.
AT&T wishes its rival good luck with that. "We carry half the U.S. wireless data on the fastest 3G network," says Larry Solomon, an AT&T spokesman. "Verizon's network hasn't been battle-tested yet, so you don't know if they can handle the data load or not." In anticipation of competition, AT&T has been signing customers up for new, two-year contracts to discourage defectors to Verizon.
Verizon is sure to experience some glitches, but for now Seidenberg can savor the victory of winning a new friend in the Valley. According to Seidenberg, Jobs told him during a December 2009 meeting, "Decisions you made [at Verizon] are decisions we would make at Apple." Adds Seidenberg: "I think he began to look at us as having a slightly bigger IQ."
Then there's Seidenberg's dance with that other Silicon Valley juggernaut (and Apple rival), Google. When the Verizon CEO arrived on Google's Mountain View, Calif., campus in mid-2007 he might have expected boos and hisses. At the time "there was tremendous tension between my side of the world and the telcos," recalls Google CEO Eric Schmidt. The cause: Tech companies, especially Google, wholeheartedly embraced a principle called Net neutrality, which would ensure that all Internet traffic, from goofball YouTube videos to medical-monitoring data, is treated the same. Telecom companies such as Verizon lobbied against Net neutrality, saying that Internet traffic had to be prioritized so that it would flow properly and users could have an optimal experience.
In fact, Seidenberg was not harassed at Google -- probably because nobody recognized him. As Schmidt recently told Google employees: "He just shows up by himself, wandering through the building," before sitting down with Schmidt and company co-founder Sergey Brin. Though the companies would eventually exchange more harsh words about Net neutrality and other regulatory issues, that first Mountain View visit proved an important turning point in the ever-evolving Google-Verizon relationship. Seidenberg encouraged his direct reports to reach out to their counterparts at Google and find ways to work together. The result: Verizon has become the network of choice for phones that run on Google's Android platform, a wireless operating system that allows handset makers to build cool, web-enabled multimedia phones -- not an entirely surprising development given that Verizon has needed to stock its stores with devices to rival the iPhone. "Ivan has proven to be both a formidable competitor and a phenomenal partner," concedes Schmidt.
The Seidenberg-Schmidt sit-down also paved the way for détente on Net neutrality. Schmidt he says he was heartened to see Verizon agree to open its own wireless network to web applications and services instead of clinging to a "walled garden" approach that kept third parties' offerings at bay. Verizon also began softening its stance on government enforcement of some Net neutrality principles.
But Verizon felt it needed to show Google why innovation would suffer if laws barred the phone company from managing traffic in its wireless network. Verizon built cell sites on Google's campus, mostly to test Android phones but also to show the complexities of running a wireless network. The upshot: Schmidt got to see firsthand how network performance -- and Verizon's brand -- would suffer if, say, a consumer tried to download a feature-length movie to his wireless phone at the same time an insurance adjuster was trying to file a claim from the field.
That kind of high-level engagement helped Verizon's and Google's policy teams in Washington move closer. Negotiations heated up over the summer, and in August the two companies issued their framework to the Federal Communications Commission, the government agency in charge of implementing Internet rules. The companies voiced support for the FCC's right to force network operators to treat all Internet traffic fairly and equally -- and agreed that companies that don't should be punished. But the companies also said wireless networks, and some new services on land-based networks such as educational services, should be exempt from the Net neutrality regulation for now. The tech world pilloried Google for what some saw as a betrayal of its "Don't be evil" mantra. But Seidenberg, not surprisingly, gives Schmidt props for being practical. "I think they deserve credit for evolving on it." And he says Verizon gets points for conceding that they needed a little bit of policing. He says, "I guess we both gained a little bit."
Seidenberg honed his sharp negotiating skills during a stint in Washington, D.C., an important training ground for telecom executives. In 1981 he became head of Nynex's regulatory office. Colleagues say he looked a bit like Al Pacino in Serpico: He sported a beard and shirtsleeves. "Ivan wasn't Ivan when he first took over," Lowell McAdam says. He eventually lost the beard and donned business suits and French-cuffed shirts, a uniform he rarely sheds, even when visiting his peers in Silicon Valley.
Though he does not socialize often with other CEOs, Seidenberg is a corporate A-lister. "He's a CEO statesman," says Philippe Dauman, CEO of Viacom (VIA). "I don't think I've ever heard him raise his voice." He's put his politician's skills to work as CEO of the Business Roundtable, corporate America's most high-profile podium in Washington, and used his position to blast the Obama administration (though, he takes pains to say, not Obama personally) and Democratic lawmakers. Earlier this year he accused Democratic lawmakers of creating an "increasingly hostile environment for investment and job creation."
His lack of glitz is an advantage. It allows him to meander around places like Google unnoticed, taking in information, forming strategy. "He sizes up the role and what it requires, and then he plays the role," says Maggie Wilderotter, CEO of Frontier Communications (FTR), who bought some of Verizon's rural phone business earlier this year for $8.6 billion. For years Seidenberg sized up the role of CEO of Verizon: When Nynex merged with Bell Atlantic in 1997, Seidenberg accepted the No. 2 spot until 1998, when Bell Atlantic bought GTE. Again, Seidenberg agreed to share the top job with GTE's Charles Lee until Lee retired in 2002.
Now it is Seidenberg who is facing retirement (he will be 65 in December 2011). He is unsentimental about his reign at Verizon. Yes, he built a huge company through acquisitions and investment, but much of his 15 years in executive leadership was spent fighting legal and regulatory battles that would enable Verizon to offer new services such as long distance and pay television. "The way I look at it is, the Marines landing on the beach aren't the ones who build the hospitals," he says. "So the things that are next are far more interesting and powerful than the things we've done in the past."
Though he sounds a bit wistful about leaving Verizon just as the company is about to enter an exciting new phase, he makes clear that he has no plans to hang around after McAdam takes over some time in 2011. A Knicks fan -- he has season tickets -- and a moviegoer (he says many of his pop culture references come from the films The Godfather and A Bronx Tale) he'll probably take in some basketball and see a flick or two. And if he wishes, it is likely he will be checking out the sports scores and movie times on his brand-new Verizon iPhone.