Editor’s note: Verizon EVP Tom Taulke delivered this speech last week. It was an unusually rich week for speeches; we’ve previously posted Comcast EVP David Cohen’s speech as well as FCC Chairman Julius Genachowski. These statements should all be taken as preludes to the FCC’s coming action on Internet regulation, AKA “net neutrality.”  When a group of heavy hitters like this make strong statements at the same time, it’s a fair bet that something big is about to happen.

Prepared Remarks of Verizon EVP Tom Tauke

Optoelectronics Industry Development Association Meeting

“The Future of Telecom and U.S. Competitiveness”

Tuesday, November 16, 2010

Thank you. It’s a pleasure to be here.

No group better understands the power and potential for global, high-speed, highly intelligent broadband networks … for those connected to them and for the U.S. economy. Your mission – to focus on the business of technology, particularly the hardware that enables the ongoing innovation in our industry – reflects it, as does the theme of your conference: “The Future of Telecom and U.S. Competitiveness.”

The U.S. Commerce Department estimates that the communications and information sector already represents about one-sixth of our economy. And this sector will be increasingly important to America’s ability to remain competitive in the global economy and a leader in innovation.

In 2009, in the headwind of the worst recession our country has experienced, our industry invested $130 billion and accounted for an astonishing 43 percent of all non-structural capital investment in the U.S. Verizon:

• Has over the past several years been investing some $23 billion to deploy our fiber-to-the-home network, which has achieved one-gigabit speeds in tests.
• Is investing heavily in upgrading and expanding our global Internet backbone network that reaches 100 gigabit speeds; and,
• Is building our 4^th Generation wireless network with fiber-to-the-tower to bring true broadband speeds to wireless consumers.

This kind of investment in technology pays big dividends across the economy:

• About four dollars of value for every dollar invested in Internet technology;
• It’s estimated that annual economic benefits of the commercial Internet  of $1.5 trillion – more than the global sales of medicine, investment in renewable energy and government R&D investments combined; and, finally,
• Jobs – Bob Crandall of the Brookings Institute estimates that just the investment in broadband can produce more than 500,000 new jobs over the next five years.

To ensure our nation’s long-term economic growth, we need to do what we do best … innovate and improve productivity. Broadband technology and networks are enabling just that across all business sectors. So, from a policy perspective, I think it’s fair to say that there’s broad agreement that a healthy technology and communications sector is important to our future.

Where there is debate, it is around which public policies will best make the U.S. a hospitable place for technology investment and innovation. In the areas of broadband investment, deployment and adoption, it’s particularly important that we have policies that encourage robust growth in financial capital, human capital and technology capital. But how do we do that?

First, we need to encourage policies that put the U.S. on a more competitive footing in the global economy. Capital is mobile; it is invested where it is most welcome, but our corporate tax system is an impediment to greater investment in the U.S.

The U.S. corporate tax rate stands at 35 percent, which will soon stand as the highest rate of tax on business in the world when Japan  implements its rate cut. A study by the Organization for Economic Cooperation and Development found that of the various taxes a country can impose, “corporate taxes are the most harmful tax for economic and wage growth and global competitiveness.”

U.S. policymakers should take steps to make our business tax system competitive with its major trading partners or risk falling behind in the global race to attract capital, jobs, and drivers for economic growth, and today there appears to be almost universal support for cutting the U.S. rate by anywhere between nine to 15 percentage points.

There are other tax policies that can encourage investment, most notably accelerated depreciation, which allows companies of all sizes to immediately deduct part of the cost of equipment, such as fiber-optics and computers. The past couple of years, companies could deduct 50 percent of such costs, and the Obama Administration has proposed extending 100 percent accelerated depreciation through 2011.  An Institute for Policy Innovation study estimated that every dollar of tax cuts devoted to accelerated depreciation generates about nine dollars of GDP growth.

Another tax issue is increasing and making permanent the federal R&D tax credit for businesses, which would reward companies that develop new technologies domestically and expand American employment opportunities. Our tax credit currently doesn’t rank even in the Top 10 globally, which sends a clear and wrong-headed signal to entrepreneurs and companies that are looking to invest in innovation.

Implementation of each of these revised tax policies would free up investment dollars currently sitting on the sideline in this uncertain economy and spur demand for the equipment and products and services that create jobs and grow the economy.

In addition to investment of capital, we must encourage policies that expand our resources in human and intellectual capital.

Because the U.S. has historically placed a premium on innovation, entrepreneurship and research development, we have been a destination of choice for foreign talent in such fields as engineering and the sciences. But for a number of reasons our student and professional visa systems have become overly complex and hinder American companies from attracting the talent they need to innovate and compete.

For example, the U.S. caps H-1B visas for highly trained workers at 65,000 visas per year for scientists and engineers. Even with exemptions, the number of such visa stands at below 100,000 per year. For a country built on the contributions of immigrants, and now in need of all the talent it can develop and attract to compete in the global economy, we should not be limiting highly-skilled, highly-educated people who want to come to this country to work in our innovation economy.

One of the sources for such workers is our university system, which remains the best in the world. Just yesterday, it was announced that U.S. institutions of higher learning attracted a record number of foreign students during the 2009-10 academic year. It isn’t that students don’t want to come here; the challenge is keeping them here once they’ve gained the skills we most need.  Countries like India and China are developing quickly and creating competitive opportunities for these students to return home.

Just as companies compete to attract and keep talented employees, the U.S. should be looking for ways to attract and keep intellectual talent.  We should encourage policies that allow international students who complete a degree at a U.S. university in a high-demand field, and who have a valid job offer, to obtain a work permit outside of the existing quotas and with a path toward citizenship.

At the same time, we also want to do everything we can to encourage and support our own young people to gain the necessary education and skills in the sciences, engineering and technology fields.  Education is one area where broadband technology can be most helpful, especially in training students and providing them with access to unique and specialized educational tools.

Now let me address proposed policies regulating broadband networks.

Over the past decade, through investment and innovation, we have built a global platform for economic growth … our broadband networks. As this group well knows, with billions more around the world eager to connect to the networks, we will need more and more-advanced global networks to meet consumer demand. In other words, the universal glass platform and continued innovations around wireless infrastructure.

From a public policy perspective, to meet this demand, the first objective should be to encourage the ongoing investment and innovation we are seeing. Put another way, regulators should “do no harm.”

The open Internet architecture that now dominates the broadband world encourages ongoing innovation across the Internet ecosystem. Yet, this notion of an “open Internet” has been one of the most politically challenging issues policymakers have had to deal with.  You’ve heard different terms for it – “net neutrality” being the most popular.   That term “net neutrality,” however, now has different meanings for different people. But at its heart, the debate about this concept is about innovation and network management issues.

We at Verizon have long contended that market forces would drive us to open networks. The notion that an infrastructure provider can own and control all aspects of the services the customer receives went out the window long ago.  Today, network providers are partnering with many others in the Internet ecosystem to create new services and to compete aggressively in the marketplace.

After haggling over the issue for over five years, we are essentially in the same place we were when this debate started. There still is no identifiable problem to be solved, and instead, as predicted, technology and market forces are ensuring that access to the Internet is open to consumers, as well as to developers of content and services.

As this marketplace has evolved, we have made substantial progress toward reaching consensus on the appropriate standards for the industry and the proper role of government.  That role is to be the policeman on the beat, ready to act to enforce the standards of openness if consumers are being harmed.

That said, current law does not define that role – or any other, for that matter – for the government in the Internet space.  This lack of clarity is what creates uncertainty in the marketplace, and that’s why we believe that the issue of broadband and Internet policy needs to be addressed by Congress.

Attempts by the Federal Communications Commission to assert it’s jurisdiction in this area have resulted in court rebukes and considerable uncertainty.  New efforts by the FCC to adopt net neutrality policies are likely to suffer a similar fate.  Moreover, the struggle over these policies seems to be occupying the policy field and preventing the FCC from addressing other critical issues, many of which were teed up in the National Broadband Plan.

I think it’s noteworthy that earlier this month, the European Commission confirmed the need for network flexibility and recognized the value of network management. After an extensive review of the net neutrality issue, Neelie Kroes, the Vice-President of the European Commission with the Digital Agenda portfolio, concluded that there is no need to regulate the way network operators manage their networks, and that to impose such regulation might deter investment.

The EU ruling on network management is a reminder of the global nature of the Internet and broadband networks.  Verizon itself has 500,000 miles of cable backbone that link Internet users around the world – and we provide cutting edge IP-based services to U.S. multinationals in 150 countries.

This means that beyond pro-investment policies here at home, also promoting less restrictive global policies for everything from cross-border data flows, to what can be stored on servers where, to mandated filtering and use of local technology standards. Each puts in place a major impediment for innovation. Some jeopardize the fundamental security and stability of the Internet and could jeopardize the evolution of new business models, such as “Cloud Computing,” where American companies are leaders and very competitive.

It’s also important to encourage policies for global connectivity and interoperability between networks – both through technical features and the avoidance of regulations that can interfere with this connectivity.  For example, government mandates for Internet pricing models or unbundling of advanced networks could easily create barriers in global network deployment, far beyond the borders of an individual country.  Many are calling for charging arrangements that treat data traffic just like voice telephony. This micromanagement does not accurately reflect what the Internet is, nor the new realities of innovative and rapidly-changing business models.

There’s an old saying that, to someone holding a hammer, everything looks like a nail. Regulators regulate, lawmakers write laws.  On the other hand, engineers and technologists use data, science, and technical analysis to find practical solutions to problems. I’d suggest that we can bring some of that problem-solving, fact-based perspective to bear on issues we’ve traditionally tried to solve with regulations and laws.

One of the hallmarks of the Internet, going back to its formative years, is its collaborative and consensus-building spirit. The reality is the Internet has largely been self-governed. Such organizations as the Internet Engineering Task Force (IETF) have over the years helped establish key protocols that make the Internet work and are important to its interoperable nature.

Building on this model, Verizon and some of our partners have encouraged technology leaders and experts from across the Internet ecosystem to set up voluntary organizations and forums to provide advice, technical guidance and advisory opinions to government agencies.

The most recent example of such collaboration is the Broadband Internet Technical Advisory Group, or BITAG, a growing group of technologists and engineers from academia, the advocacy community, broadband providers, equipment and software companies, and content companies. This group’s purpose is to develop consensus on broadband network management practices and other technical issues. The expectation is that BITAG will provide a forum for engineers and technologists from across the Internet ecosystem to discuss best practices, examine emerging technology challenges, and advise policy makers on how to think about key technology issues.

It wasn’t so long ago that the United States was the fastest growing major industrialized nation in the world, and broadband technology was really just emerging and taking hold. The challenge for us now is to regain our economic footing and put in place the kinds of policies that will make us the fastest-growing major industrialized nation in the world tomorrow.  Encouraging policies that invest in all forms of capital is a good place to start.

It is important that we get the policies right for broadband and the Internet, not only for our continued global leadership in technology, but because these networks are so critical to so many areas of our daily life and our future … the modernization of our electric grid, our health care system and the dramatic improvements we need in our educational system. This is a big agenda, but by engaging all players across the Internet marketplace, and by working together – industry players, policymakers and consumers – we can ensure great opportunities for innovation and growth for us and future generations.

Thank you.