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Online Extra: Should Net Companies Pay More for Speed?


Thomas J. Tauke, Verizon's (VZ) executive vice-president for public affairs, is the company's point person in Washington. A six-term Republican congressman from Iowa from 1979 to 1991, Tauke was involved in telecom issues on Capitol Hill, including the breakup of AT&T T

, before joining Verizon's predecessor, NYNEX. BusinessWeek's Mark Gimein spoke with him about some of the issues that have alarmed critics of the big phone companies. Edited excerpts of their conversation follow:

Should Internet content providers pay extra to reach customers at higher speeds?

It depends. There is no business model yet that we are aware of where the content providers are paying. But as these networks have increased capability, and as new companies emerge, we think new models will develop.

So let's say, for example, that you've purchased 5 megabits of service, and you are a gamer. And the XYZ gaming company develops a new game that needs 25 megabits of service. They could come to you as a consumer of their products and say: "Go to Verizon and buy 25 megabits." Or they could come to Verizon and say: "When he logs on, we want you to up the speed so that he will get 25 megabits." So this would be a way in which they could jumpstart their business by making sure that when you purchased the game from them you also got the high-speed capability.

Is there a gaming company that is doing that now? No. Should we prevent a gaming company from doing that? We don't see why, because it obviously is easier for that gaming company to come to us and say, "When one of our customers needs this speed, we'd like to give it to them," rather than to have them go and convince every one of their customers that they should pay for this high-speed access on a monthly basis.

Is it reasonable to fear that down the line companies that want to provide Internet services will have to pay to reach customers who have signed on for phone service, Internet access, and TV—"captive customers" of yours?

Well, if you were working for Verizon, I would say to you that you have to change your mindset, because you're still back in the days of 1982 or something, when we were a telephone company and we had what we would call captive customers. But today there are no captive customers, and what we have been attempting to do as a company is to turn the world upside-down.

I think we have been pretty successful. As we deploy new technology, what is happening is that we are the insurgents who are trying to come in and change the marketplace, and there are other players out there, some who may have different reputations for being innovative, who are trying to hold on to what they have.

So if you look, for example, at what we've done on the wireless side, when this number-portability issue came along, people said: "Well, they aren't going to want number portability because that means that the customers will be able switch." Before the regulators said so, Verizon Wireless said: "We support number portability." Why? Because we believe that we have the best product, the best service, and in a free and open marketplace, we can win."

What about new wireless networks that are being built to provide whole cities or towns with wireless data access?

Our position on municipal systems has been essentially this: We look at the track record and don't think that the track record is very good. We think taxpayers ought to be fairly concerned about governments investing in these communications networks. We do think that systems should not be subsidized by taxpayers over the long haul, that they ought to pay for themselves, and they ought to play by some of the same rules that [we do].

We don't necessarily think it's a wise investment, but we aren't out fighting these things. And in some cases, we are partnering with communities. We can see rural areas, for example, where it's unlikely we're going to be offering broadband service over the traditional wireline network in the foreseeable future. So I guess we've been in five or six communities across the Northeast where we have trials going, where we are using alternative technologies—specifically, WiFi and Wimax—where we're partnering with the local community to provide service.


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