Here’s the video of Web 2.0 Summit host John Battelle interviewing Facebook CEO Mark Zuckerberg a few weeks ago, in which Battelle floated a rumor that the social-networking site might be interested in buying Twitter.

If you want to see the exchange, it starts at 22:15 minutes, when Battelle asks: “Is Twitter just a feature of Facebook?”

Awkwardness ensues from there until 23:07 minutes, with no direct question about an actual acquisition effort asked.

Thus, Zuckerberg does not have to fib in front of the Web 2.0 crowd about talks that were just then winding down between Twitter and Facebook, which offered $500 million in its stock to buy the popular microblogging site.

Actually, sources said, while Zuckerberg and Twitter Co-Founder and CEO Evan Williams did meet and get along well, the deal was primarily negotiated by Spark Capital partner Bijan Sabet (Spark is a Twitter investor) and Facebook deal guy Dan Rose.

But, in the end, as BoomTown reported earlier today in a detailed report on the failed deal, Twitter rejected that bid.

As is usually the case, the deal broke down over price–was $500 million worth of Facebook stock actually worth $500 million?–and the typical concerns about integration and costs. Also, Twitter wanted an all-cash deal.

But, more important was a feeling among Twitter investors and execs that the start-up should still take a shot at building its revenues–there are none right now–as well as it had done at building its growth.

In fact, Twitter’s fast growth in the “status update” arena has been a frustration to Facebook, some sources said, although Zuckerberg goes out of his way to compliment Twitter in the video below:

[Updated with new details about deal, including who worked on it and info on a cash component.]

About three weeks ago, Facebook and Twitter ended several weeks of serious talks, in which Facebook was offering to acquire Twitter for $500 million of its stock, which also included a cash component.

While rumors of Facebook’s interest were brought up in an interview with Facebook CEO Mark Zuckerberg at the Web 2.0 Summit a few weeks ago, some shot down the idea as silly.

Quite incorrectly, as it turns out, since top execs at both Facebook and Twitter were right then at the tail end of discussions, which were initiated by the privately held Facebook in mid-October, about bringing the two together.

Those talks, sources on both sides said, are now over.

So why did the deal break down?

Well, as is usually the case, over price–was $500 million worth of Facebook stock actually worth $500 million?–and the typical concerns about integration and costs.

But, more important, it seems, was a feeling among Twitter investors and execs that the start-up should still take a shot at building its revenues–there are none right now–as well as it had done at building its growth.

“It’s more about timing,” said one person familiar with Twitter’s motivations. “There is a strong feeling that there is still an opportunity–even with the economic downturn–to blow this thing out.”

Still, combining the world’s fastest-growing social-networking site with what is quickly becoming the best-known microblogging service is actually a natural fit.

That’s especially true given that Facebook–for all its powerful online social connections–has seen Twitter race past it in innovating in the “status update” arena.

While some sources at Facebook said Zuckerberg was becoming frustrated by the buzz Twitter was getting–a market that should have been dominated by Facebook–others at the company said he was interested in buying Twitter because of his respect for its progress.

Indeed, at the Web 2.0 interview, Zuckerberg called Twitter an “elegant model” and said that he was “really impressed by what they’ve done.”

Indeed, with about six million registrations, as reported in October, up 600 percent over the last year, the San Francisco-based Twitter–launched in 2006–has had impressive growth.

(It has also been plagued by technical issues, which are–to be fair–decreasing.)

In any case, for those not familiar with it, the premise of Twitter is dead simple: A registered user logs in via the Internet or a mobile phone and answers the “What are you doing?” question the service asks in only 140 characters or fewer.

It’s quite a clever idea, although–so far–not a money-making one.

To try to goose that, Twitter’s board replaced the engineer who created Twitter, Jack Dorsey, with another founder, Evan Williams, who had served as its chairman and chief product officer.

The more experienced Williams (pictured here) had already built one company–Pyra Labs, which created the Blogger blogging service–that he sold to Google in 2003. He also started the audio and video search site Odeo, where Twitter was actually born.

Still, its investors have not come down on Twitter to hold back its growth efforts, and have handed over $20 million to the start-up so far. In its last round, Twitter was valued at $98 million.

Its funders include: Union Square Ventures, Charles River Ventures, Digital Garage, Spark Capital and Bezos Expeditions, backed by Amazon Founder and CEO Jeff Bezos.

In addition, well-known Silicon Valley figures, such as Marc Andreessen and Ron Conway, have also invested. Interestingly, Andreessen is also on Facebook’s board.

Other private investors include FeedBurner Co-Founder (and now Googler) Dick Costolo, former Epinions Co-Founder Naval Ravikant and former Googler Chris Sacca.

Twitter needs all the investors it can get, since it has no revenue, although it has been exploring things like charging business customers and adding advertising into the consumer service.

Lack of revenues was an issue for Facebook, said sources, especially related to fees Twitter pays for delivery of its messages to cellphones.

While the issue has been manageable in the U.S., Twitter cut off its SMS support in some international markets this summer because of too-high costs.

But, if Twitter was offered to Facebook’s 120 million users, Facebook execs estimated that it might have to deal with huge SMS fees–up to $75 million annually.

“Facebook has its own revenue-generating challenges,” said one person close to the company. “As much as Twitter would give them a lift in the status area, it was still a worry.”

Not enough, said several sources, to stop Facebook from making another approach at some point in the future. “We’d hate to see Twitter go to another company,” said one source.

Indeed, while all are even more price-conscious than Facebook, large companies that could also be interested include: Google (GOOG), Yahoo (YHOO), Microsoft (MSFT) or a large telecom company, such as Verizon (VZ).

If it had completed the deal to buy Twitter, it would have been Facebook’s most significant acquisition by far.

Zuckerberg and Williams did meet and get along well, but the deal was primarily negotiated by Spark Capital partner Bijan Sabet (Spark is a Twitter investor) and Facebook deal guy Dan Rose.

But in this time, at least, the Twitter side was still not interested in selling at the price Facebook had offered.

The $500 million offered was in an all-stock form, said sources on both sides, at the $15 billion valuation that came from the Microsoft’s investment in the company last October.

The Twitter side felt that figure was inflated and the shares should be valued at the lower figures that have also been reported for Facebook’s true valuation, more in the $5 billion range.

That would have given the deal a $150 million price tag, which was seen as too low, especially since it was in Facebook stock and not cash initially.

In fact, Twitter wanted cash, which some sources say was offered by Facebook in the $50 to $100 million range, in addition to stock, but taking too much stock was still a major issue.

There are other ways the pair could have approximated a safer choice for Twitter, via warrants, of course, or other methods.

But, said several sources close to Twitter, the primary reason for not selling was because its board simply did not want to yet or perhaps ever.

Said one source: “The question is, is it really a good idea to sell on the first chance you get?”

Well, for Twitter, we’ll just have to wait and see about that, of course.

[Photo of Evan Williams by Joi Ito. Licensed under Creative Commons 2.0 By-Attribution license.]

I blame post-election exhaustion for rendering me comatose after Tuesday, which is how this video I did at the Web 2.0 Summit in San Francisco last week got stuck in my to-do-later pile.

(I did manage to get the MySpace Music party video up though, but that was because it was more fun!)

Well, it has since been fished out, including interviews with conference organizers John Battelle and Tim O’Reilly, as well as Demand Media’s Richard Rosenblatt (who is apparently scared of me, which is just the way I like it) and Microsoft’s man-in-Silicon-Valley Dan’l Lewin.

The overall message of the Web 2.0 Summit: Batten down the hatches, except tech always rises to the surface like some kind of econalypse-fighting styrofoam.

Well, we will see about that particular miracle, but here is the video:

Let’s get this out of the way: BoomTown completely missed Lionel Richie perform, cooling our heels outside behind the rope line at the MySpace party in San Francisco last night.

Major bummer.

That aside, I did finally get in and did a video at the rocking event, which the SoCal-based social-networking site–owned by News Corp. (NWS), which owns this site too–threw at the lovely Old Mint building, after the day’s proceedings at the Web 2.0 Summit.

It featured that exclusive performance by Richie, and also song-spinning by DJ AM.

But mostly, it was the scene of a lot of wild partying, with a lot of swinging, and packed most of the night, even as the supposed gloom of the econalypse was settling over Silicon Valley.

So here it is, including MySpace PR head Dani Dudeck, refusing to sing for me, as well as a madly-dancing-but-no-commenting Brandee Barker of Facebook.

(In my Richie-less addled state, I mentioned Neil Diamond’s “Hello, Again,” rather than Richie’s “Say You, Say Me” in the video. Sorry!)

Also, don’t miss the strains of Journey’s “Don’t Stop Believin’”–which has become the infamous song of the moment in the digital sector.

Here’s the video:

Is it just me or does it feel like the whole odd public back- and-forth between Yahoo CEO Jerry Yang and Microsoft CEO Steve Ballmer is beginning to mimic the endless loop of the deeply annoying relationship between Ross Geller and Rachel Green on the long-running NBC television hit, “Friends”?

At least in their star-crossed hijinks, Ross and Rachel smooched from time to time in between the juvenile bickering (“We were on a break!”) and push-me-pull-you antics. And, mercifully for fans of the show, they got together in the very last episode.

But with Yang and Ballmer, it has been only juvenile bickering and push-me-pull-you antics 24/7, which is why BoomTown wishes they would just get a room.

A conference room to negotiate in, of course! (Get your minds out of the gutter!)

Instead, in the latest episode, it was Yang resorting to declaring in front of a ballroom full of Silicon Valley geeks at the Web 2.0 Summit on Wednesday: “To this day, I believe the best thing for Microsoft to do is to buy Yahoo.”

In a quick retort, from Australia of all places and on Yang’s 40th birthday, in fact, Ballmer bestowed this special gift back:

“Look, we made an offer, we made another offer. It was clear that Yahoo didn’t want to sell the business to us, and we moved on…We are not interested in going back and re-looking at an acquisition. I don’t know why they would be either, frankly.”

Shares of Yahoo (YHOO) have tanked almost 14 percent today after that, down $1.86 to $12.10.

Now, this kind of public display of nonaffection is not new for Ballmer, who previously raised and then tanked Yahoo’s stock price only two weeks ago, when he dangled the possibility that Microsoft might be interested in talking to Yahoo about a new search deal.

“There are probably still opportunities around search,” said Ballmer. “I think it would still make sense economically for their shareholders and ours.”

This cloddish phrasing by Ballmer was, no surprise, misconstrued by investors as full-scale interest in Yahoo, requiring a Microsoft (MSFT) spokesman to quickly enter the breach to clarify.

“Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo; there are no discussions between the companies,” he said.

It’s astonishing that this is what passes for corporate behavior on both sides.

Aside from the silliness, because it still does make sense for the pair to be talking and forming some sort of strong relationship.

In my mind, the best idea was always the complex “Traffic Co.” deal that involved Microsoft buying a large piece of Yahoo, adding its lagging MSN assets in and taking over the entire search business of the entity.

As part of that configuration, the digital assets of a media giant like Time Warner (TWX) or News Corp. (NWS), which own AOL and MySpace respectively, could also be added in.

Thus, the “new” Yahoo would focus squarely on content and communications, which it would dominate across the Internet, keeping its display ad business. Meanwhile, Microsoft could then try to really turbocharge the search and search ad business and stop mucking around in arenas it had less talent in.

It’s a lot better than what’s going on right now, which helps neither company, both of which are clearly bumping along with a desperate need for clarity.

And, if they cannot come to some terms, Yahoo has to either move on and fix itself alone or complete its long-running merger talks with AOL or not (this pair is more like Sam and Diane on “Cheers”).

And Microsoft has to stop dithering and finally pick a digital head for its business (more on that next!), a search that is beginning to feel as if Amelia Earhart will be found sooner.

Or, like Ross and Rachel, Yang and Ballmer could just admit finally–despite all their differences over the last year–that they truly are meant for each other and get down to business.

Well, this was certainly predictable–the mindless piling on of Yahoo CEO Jerry Yang now taking place in the blogosphere, in the wake of yet another setback for the troubled Internet company.

This time, it comes after the collapse of the search advertising deal with Google yesterday.

BoomTown is not saying the co-founder of Yahoo does not deserve criticism for how he has run the company since last summer–in fact, this column has been quite active in following the story.

There are very real questions about whether Yang has the right talent and temperament for the job at hand, as much as he clearly loves the company he co-founded.

After all, the stock is in the basement, after Yahoo (YHOO) lost a lucrative bird in the hand in the form of a $31 per share offer from Microsoft (MSFT).

Next, a weak economic environment is forcing it to cut deeply into the muscle of its many businesses, with slashing out 20 percent or more of costs, a worrisome trend if Yahoo hopes to grow when we all eventually emerge from the downturn.

And, of course, more key executive departures, weak employee morale and an overall inability to clearly articulate the changes Yang has been trying to make at the company, such as its laudable open platform efforts.

Nonetheless, it is simply lazy to just call for Yang’s ouster as the panacea for what ails the company. It’s a feel-good suggestion mixed with a creepy mob mentality that offers no clear path to improvement.

Still, as it is said, intelligence has it limitations, while stupidity is infinite.

Thus, immediately after Yahoogle went down came the specious rumors of Yang getting kicked out with a new Microsoft takeover bid in the works. Way too many sites posted and reposted the “news,” with most not bothering to actually call Yahoo or sources who might know to ask if this might be happening.

As the old cliche goes–if wishes were horses, all beggars would ride–so too it is wishful thinking that Yang would be flushed out just like that.

But, as with Britney Spears in her crazy days, people seem to believe anything they hear about Yang’s demise. Thus, the Google (GOOG) deal had to be the straw that finally broke the camel’s back and the board of Yahoo was tossing him overboard forthwith.

Then, inevitably comes the posts that Yang is sad, friendless and alone, a tragic figure of ridicule. Or, better still, borrowing from “Macbeth”–a poor player, that struts and frets his hour upon the stage, and then is heard no more.

Except for one thing: While a lot of investors, media, analysts and other detractors (including some on Yahoo’s own board) might want to see him step down as CEO, there has to actively be an actual effort on the part of the board to fire him (or, at least, kick him upstairs, back to his former Chief Yahoo job).

While some sources within the company say Carl Icahn and the two board members he brought with him–John Chappelle and Frank Biondi–to the Yahoo board have been reaching out of late to lower-level Yahoo execs to garner info about Yang and his management and also signaling Microsoft that there is renewed interest in reigniting talks, that means little unless the rest of the directors play along.

So far, many sources tell me, they are not.

If I were guessing, it would be Yang who would be the one to initiate any serious talks with Microsoft.

Bizarrely, he kind of did that publicly yesterday at the Web 2.0 Summit, when he said onstage: “To this day, I believe the best thing for Microsoft to do is to buy Yahoo.”

As not being CEO, I think it would also be Yang who will determine when and how that could happen, if at all.

In other words, critics can smack him all they want, but does not mean it will yield the prize they seek.

BoomTown managed to sneak into the green room at the Web 2.0 Summit last night to get a little chit-chat in with Lance Armstrong, the seven-time winner of the Tour de France cycling race title.

Armstrong is now probably going for his eighth one, much to the chagrin of France (yes, the whole country, as Armstrong notes in one of the clips in the video below), part of his “comeback” from a three-year retirement.

Here’s a video of him talking to me about his health and fitness Web site, Livestrong.com, and some snippets from his onstage interview with Web 2.0′s John Battelle, along with some crazy bidding for a bicycle he signed:

BoomTown is no fan of PowerPoint, but this one by longtime Morgan Stanley Internet and technology analyst Mary Meeker at the Web 2.0 Summit in San Francisco yesterday is made worse by its depressing content.

Meeker, a veteran who was around for the last Web 1.0 meltdown, should know from grim. An inveterate numbers cruncher–I actually met her 15 years ago, while she was crunching a different set of numbers on AOL late into the night at her New York office–she pulls out a lot of tough ones here.

Still, as usual, from the typically forward-looking Meeker, there is hope eventually.

But let’s let her show you, via the presentation she made yesterday.

Here it is (click the screen icon in the right corner to make it larger):

Inevitably, in the wake of the collapse of the controversial Yahoo-Google search advertising deal, there would come the next shoe to drop–that Microsoft (MSFT) was swooping in with a bid to buy the company and that Yahoo CEO Jerry Yang was on his way out on a rail.

Maybe that should happen, but according to my many sources, a report in VentureBeat of this development is dead wrong.

And, said sources, Yang will keep his scheduled stage appearance at the Web 2.0 Summit today in San Francisco.

The culprits of the bad information? Surprise, surprise, those wishing to make some money on the stock market on the swirl of uncertainty around Yahoo. These stock manipulators have tried to spin BoomTown many times, and they are appalling.

More later, but the Yahoo (YHOO) train-wreck story, with its latest Google (GOOG) crash, is exciting enough without specious rumors.

On Wednesday, an always worthwhile Internet-focused conference, the annual Web 2.0 Summit, kicks off in San Francisco.

The lineup for the three-day event is particularly good this year and it is also a perfect time to take the temperature of the Internet’s movers and shakers, given all the hubbub of late with the weak economy. (BoomTown will thus be there with the trusty–and shaky–Flip video, chronicling it all for future generations.)

Speakers will include bicycle champ Lance Armstrong, Yahoo (YHOO) CEO Jerry Yang, former VP Al Gore, Google.org head Larry Brilliant, Paul Otellini of Intel (INTC) and Facebook’s Mark Zuckerberg, among others, chattering away on a wide range of topics. (You can see the full schedule here.)

There’s also, of course, a passel of parties, including one on Thursday night thrown by MySpace Music. And it will–shades of Web 1.0!–feature an exclusive performance by Lionel Richie (and also DJ AM).

I am, I shall admit it and without irony, a closet fan of Richie. And why not, with so much infectious fluff to choose: “Hello,” “Say You, Say Me,” “Three Times a Lady.”

Most importantly, I will be curious to see if there will be “Dancing on the Ceiling” among the beaten-down start-up crowd. (See that music video below and ponder exactly why you know you know each and every word to that funkadelic song.)

Hosted by Tim O’Reilly and John Battelle, the Web 2.0 Summit is called “Web Mets World” this year. By that, BoomTown is inferring that its organizers think it is time for the Internet to grow up. But why don’t we let them speak:

The commercial web is now a teenager—it’s been fifteen short years since Marc Andreessen released the Mosaic browser. To put this in perspective, television as a commercial medium reached its fifteenth birthday in 1956—the year Elvis Presley made his first appearance on national TV…as we pondered the theme for this year, one clear signal has emerged: our conversation is no longer just about the Web. Now is the time to ask how the Web—its technologies, its values, and its culture—might be tapped to address the world’s most pressing limits. Or put another way—and in the true spirit of the Internet entrepreneur—its most pressing opportunities.”

And, of course, here’s Lionel:

Web 2.0 will be known as the name of a bubble. And 3.0 would only be a marketing disaster.”
Ross Mayfield’s Weblog, Nov. 12, 2006

Web 2.0 acolytes who shelled out 1,100 euros for admission to Web 2.0 Expo Berlin, which kicks off today, will no doubt be dismayed to learn that the term “Web 2.0″ is no longer an enchanted aegis under which to quest for venture capital. Seems the VC community has finally had it with Web 2.0, its hobbies masquerading as businesses and start-up brands with a reclusive letter “e.”

To wit, Kleiner Perkins Caufield & Byers, one of Silicon Valley’s most prestigious venture capital firms, is reportedly no longer investing in Web 2.0 start-ups. “We have absolutely no interest in funding Web 2.0 companies,” KPCB partner Randy Komisar recently told Silicon Valley Watcher’s Tom Foremski, adding that he’d recently told John Battelle, conference chair of Web 2.0 Summit, that the term is viewed with disdain in the VC community.

As the Globe and Mail’s Mathew Ingram notes, Komisar’s remark is for Web 2.0 devotees “a little like King Arthur telling you he’s really not that hot on the whole Grail thing any more, and you can stop looking now.”

It’s also more than a little ironic. Because, according to a report from Dow Jones VentureOne and Ernst & Young, emerging Web 2.0 companies snared almost $1 billion in venture capital worldwide in the first six months of 2007. That said, very little of it was from KPCB, which seems to have sat most of Web 2.0 out. “I’m personally not doing much in Web 2.0 at the moment,” Komisar told VentureBeat in January. “I’m looking for more fundamental innovations. I’m less interested in the content and media fallout. There are no strong barriers to entry in Web 2.0. If by Web 2.0, you mean companies that build an audience to be monetized by Google, I am not actively pursuing them; though I should never say never. I’m not sure how long YouTube would have remained an independent business had they not been bought by Google. Google has an efficient search engine to monetize large audiences. If you’re creating Web 2.0 products and media, its tough to build anything of sufficient scale to remain independent–you are more likely to end up being a feature on Google, Microsoft or Yahoo.”

There can’t be any more deep technology in Facebook than what dozens of people could write in a couple of years. I think these things are going to have some legs, and yet there’s a … faddish nature about anything that appeals to younger people.”

–Microsoft CEO Steve Ballmer, Oct. 2

“So how’s that Facebook deal working out for you?” Web 2.0 Summit conference program chair John Battelle asked Microsoft CEO Steve Ballmer last week. “Are you making money?”

“Rumor has it that we’re not,” Ballmer replied, adding “Mark [Zuckerberg, Facebook CEO] says we’re happy with it, so I guess we’re happy with it.”

Or, rather, happy enough. Because Microsoft has beaten Google out for an ownership stake in Facebook in a just-announced deal (see below).

Horrifyingly to those who are scrutinizing it, the deal puts Facebook’s valuation at around $15 billion.

UPDATE:
According to the release that just landed in my inbox, Microsoft is taking a $240 million equity stake in Facebook.

Facebook and Microsoft Expand Strategic Alliance

Microsoft to take equity stake in Facebook; companies expand advertising deal to cover international markets.

“Palo Alto, Calif., and Redmond, Wash.–Oct. 24–Facebook and Microsoft Corp. today announced that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation, and the companies will expand their existing advertising partnership. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States. Financial terms were not disclosed.

“ ‘We are pleased to take our Microsoft partnership to the next level,’ said Owen Van Natta, vice president of operations and chief revenue officer at Facebook. ‘We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook.’

“ ‘Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only our two companies, but also our collective users and advertisers,’ said Kevin Johnson, president of the Platforms and Services Division at Microsoft. ‘We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.’ ”

Onstage at Web 2.0 Summit, Stephenson again argues for a two-tiered Internet, rehashing the incumbent telecoms’ talking points. Net neutrality=BAD. Telecoms deserve the option, he says, to charge some users more money for loading certain content or Web sites faster than others. “We all want the same thing,” says Stephenson. “We all want this Internet thing to grow. But I don’t want anyone to interfere in how we monetize our investment. You shouldn’t regulate something until there is a problem.”

Moving on to the iPhone and AT&T’s partnership with Apple. “How’s the iPhone deal going,” conference co-sponsor John Battelle asks. Going great, replies Stephenson. “Not sure I could have asked for more from it than I’ve got.”

“Some people are a little … unhappy with AT&T’s EDGE service,” says Battelle. “Why isn’t it better and when will it be better?”

[Laughter]

“Well, [Apple CEO] Steve Jobs wanted it on the EDGE network. He wanted a broad ubiquitous data network. I don’t particularly like the speed; 3G is a lot better, but Wi-Fi is a pretty darn good surrogate.”

Apparently, Stephenson doesn’t use an iPhone.

Battelle asks about Stephenson’s feelings about Google. “You [AT&T] have a $250 billion market cap, $117 billion in revenue. They have $200 billion in market cap, on revenues that are about 10% of that. How do you feel about that?”

“I’m envious,” says Stephenson.

Battelle pushes a bit harder. “Are they riding your capital investment [on telecom infrastructure]?”

Stephenson concedes, “Of course,” he says.

“Does it tick you off?”

“No.”

Unflappable, this Stephenson.

One last exchange worth noting here. Battelle asks Stephenson about claims of government access to AT&T user data. Stephenson ducks for cover and offers this terse reply: “The law is clear on this: I can’t comment on matters of national security. The law is also clear on how we respond to requests from law-enforcement agencies.”

Onstage at Web 2.0 Summit, Stephenson again argues for a two-tiered Internet, rehashing the incumbent telecoms’ talking points. Net neutrality=BAD. Telecoms deserve the option, he says, to charge some users more money for loading certain content or Web sites faster than others. “We all want the same thing,” says Stephenson. “We all want this Internet thing to grow. But I don’t want anyone to interfere in how we monetize our investment. You shouldn’t regulate something until there is a problem.”

Moving on to the iPhone and AT&T’s partnership with Apple. “How’s the iPhone deal going,” conference co-sponsor John Battelle asks. Going great, replies Stephenson. “Not sure I could have asked for more from it than I’ve got.”

“Some people are a little … unhappy with AT&T’s EDGE service,” says Battelle. “Why isn’t it better and when will it be better?”

[Laughter]

“Well, [Apple CEO] Steve Jobs wanted it on the EDGE network. He wanted a broad ubiquitous data network. I don’t particularly like the speed; 3G is a lot better, but Wi-Fi is a pretty darn good surrogate.”

Apparently, Stephenson doesn’t use an iPhone.

Battelle asks about Stephenson’s feelings about Google. “You [AT&T] have a $250 billion market cap, $117 billion in revenue. They have $200 billion in market cap, on revenues that are about 10% of that. How do you feel about that?”

“I’m envious,” says Stephenson.

Battelle pushes a bit harder. “Are they riding your capital investment [on telecom infrastructure]?”

Stephenson concedes, “Of course,” he says.

“Does it tick you off?”

“No.”

Unflappable, this Stephenson.

One last exchange worth noting here. Battelle asks Stephenson about claims of government access to AT&T user data. Stephenson ducks for cover and offers this terse reply: “The law is clear on this: I can’t comment on matters of national security. The law is also clear on how we respond to requests from law-enforcement agencies.”