Ivan G. Seidenberg Interview Excerpts

CEO, Verizon Communications Inc.

Following are excerpts from a Washington Post interview with Verizon Communications Inc. chief executive Ivan G. Seidenberg. The interview, conducted by Post staff writer Arshad Mohammed, took place Jan. 30 in New York.

Q: When do you expect to see a positive return on the FiOS investment?

A: It's a big project and since we're building out market by market -- just to give you a rough sense and without getting into a detailed accounting presentation . . . -- that as you build these markets out over a period of four or five years you generally reach cash flow positive, then you reach EBITDA positive, and then you reach net income positive and you do this market by market. So it will take enough critical mass in enough communities for the whole project to turn positive, but you start out, in effect, community by community, exactly the way you did it with building out wireless and before that before the way the telcos built out their telco franchises and frankly the way cable has built out their franchises. There is no anniversary date, or one barbecue, that we are going to have on the date we all . . . this is all a market-by-market deal.

Q: But is there a date by which you would hope that it will cease to be dilutive to your earnings?

A: Well, sure. As we looked at the business plan is, you know, four to five years out, but again when you look at this you have to be careful what you are looking at because the minute the first few franchises turn positive, the investor looks at the whole process differently. And there is certainly going to be growth. There are many cable companies who have never turned a profit. So I think we have to be careful how we look at this. And I think in our case, once we get enough critical mass to demonstrate that the capital we are spending will generate the top line, and then we convert the top line into the bottom line, there will be a lot more, I think, 'comfort level' that many investors will have. In spite of all of the financial scrutiny this has been under, no one has challenged, in effect, the capability of what we're doing. So this is not, for example, I don't want to pick examples that pick on companies, but this is not like putting in satellite phones that people weren't sure were going to work. People know that fiber optics work. So this is really an issue of the financial payoff rather than the technical capability.

Q: Would you expect that over the four- to five-year period that you have projected out that by the end of that period it would have ceased to be dilutive?

A: I am not communicating this very well. I think there will be a lot of markets that will cease to be dilutive and then we will be starting new markets . . . So the issue is once you get enough critical mass -- so what we need to do is over the first, say, five years of the project is get enough critical mass to offset new markets. For example, we buy spectrum in wireless and we add a market and we build out, that market is dilutive, but when you look at the big ship, the big ship covers that up. So I think it's a question of when we get enough critical mass to do that. So getting back to the video franchising, the quicker we get through this process, the quicker we can get these markets penetrated, and the quicker we can show that there is successful execution of this strategy.

Q: In the (fourth quarter) conference call, the company noted that it (FiOS) had had a 4-cent dilutive effect on '04, about 15 cents on '05. . . . (Verizon chief financial officer Doreen Toben) said that she expected for '06 it would be an additional 10 or 15 cents. Did that mean, 10 or 15 cents beyond the 15 cents in '05?

A: Yes.

Q: In other words 25 to 30 cents.

A: Right. . . . By the way, which is a very small amount when you think about it. You know . . . every time we put a cell tower in, it's dilutive until you get customers up and running. So, the issue is . . . because of the heightened focus on this, I think we [tried] to help investors understand. So even when you hit a peak period of dilution, we're looking at 25 to 30 cents in total. Remember, since we already had [been] reporting about, say, 12 to 15 cents dilution in '05, and we are building another 3 million in '06, so there is more dilution. Now, by the time you get to '07, and you start to add more [lines] the ones you built in '04 and '05 will start to generate some revenues so they will start to offset some of that. So it's fair to say that in '06 we are hitting about a level of dilution that would be about the maximum and that from now on out we'll start to get better. So that's another way to think about it. But every thing you do, whatever you do in a capital intensive business . . . the first year or so, until you get customers up and running, you have to spend money to make money.

Q: Ten years, 15 years, 20 years -- what is the kind of time horizon that an investor needs to look at, or what is the horizon in your own mind, where you feel like you will have turned the corner?