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Verizon Says Google, Microsoft Should Pay For Internet Apps

CEO Seidenberg says content companies who provide advertising-supported applications should share operational costs with owners of broadband networks.
LAS VEGAS, Nev. -- There's no such thing as a free lunch on the Internet, according to Verizon CEO Ivan Seidenberg, who said Thursday that providers of bandwith-intensive Internet applications, including Google and Microsoft, should "share the cost" of operating broadband networks.

According to Seidenberg, Verizon and Google are already talking about how such compensation might be structured, striking a tone far more diplomatic than AT&T CEO Ed Whitacre, who last year openly criticized Internet application providers like Google and Voice over IP provider Vonage Holdings.

"We talk to them [Google] all the time, and they understand the issue," said Seidenberg, in a question-and-answer period following his keynote speech Thursday at the Consumer Electronics show here. Google, which already offers a bevy of online apps like email, instant messaging, voice and satellite map searches, is expected to announce a video-download service here Friday. (Google could not be reached for comment immediately.)

While Seidenberg said Verizon "intuitively" believes that the Internet should be open to all applications, he also said that "we need to make sure there is the right economic model," especially in regards to so-called "free" or advertising-supported applications, which generally do not offer any direct compensation to the network service provider.

"We have to make sure that they [application providers] don't sit on our network and chew up bandwidth," Seidenberg said. "We need to pay for the pipe."

Unlike Whitacre, who has previously called Internet application providers like Vonage "free riders," Seidenberg seems far more amenable to negotiations and partnerships. "Google and Microsoft are our partners," he said, crediting the companies for creating huge markets with their applications and services, which all need networks like Verizon's to thrive.

But Seidenberg also noted that despite the explosing of Internet applications and devices, all content providers ultimately need a network to reach customers, and he said Verizon is "one of three or four [companies]" with a widespread reach across multiple access platforms.

"Those guys [Google and Microsoft] gotta use a network," Seidenberg said. "But it's also incredible when you see the innovation that a Google, a Microsoft or an AOL can create. In the long run, Google won't work without us, and we won't work without them."

Tom Tauke, Verizon executive vice president for public affairs, policy and communications, said Verizon would not block specific applications, an issue that emerged early last year when a telecom service provider briefly tried to block Vonage's VoIP services.

"We would not do that [block specific applications], and it shouldn't be done," said Tauke, who said that Verizon is actually in favor of codifying so-called "network neutrality" rules, as long as there are provisions for parallel private networks, like Verizon's nascent fiber-based television services. At CES, Verizon announced plans for an online gaming network that would also likely be segmented away from the "open" Internet, so that Verizon could better control the performance of the network.

As for open Internet applications, Seidenberg said it's still too early in the game to try to make definitive statements about how service providers and application providers can co-exist, partner, and compete.

"When we offered 800 numbers, our network got flooded and we responded by choking the network," Seidenberg said, adding that the company then negotiated with 800-service providers to help pay for their usage in a manner that made sense for both parties.

"Now it's a new game, and Google and Microsoft are great at creating markets," Seidenberg said. "It's too early to draw a line in the sand," he added. "I don't think I'd ever say these guys are not going to ride on my pipes."