Copyright 2000 The New York Times Company
The New
York Times
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October 9, 2000, Monday, Late Edition - Final
SECTION: Section C; Page 1; Column
2; Business/Financial Desk
LENGTH: 1793
words
HEADLINE: TECHNOLOGY;
SBC Is Going National
With Its Local Service
BYLINE: By SETH
SCHIESEL
BODY:
East Wareham, Mass., near the
Cape Cod canal about an hour south of Boston, is not generally known as one of
the telecommunications industry's hotbeds of competition. But do not tell that
to Gary D. Powers.
Mr. Powers is president of Abbey Glass, a small glass
installer and distributor in East Wareham. His company, with nine employees and
perhaps a half-dozen phones, is also a pioneer of what could be the most
ambitious plan yet to give consumers and businesses across the country a choice
in local communications providers. The vehicle for Abbey Glass's rush to the
telecom vanguard is SBC Communications Inc., the giant local phone company known
variously throughout the Midwest and Sun Belt as Ameritech, Pacific Bell and
Southwestern Bell. This summer Abbey Glass became the first customer of SBC's
new unit that plans to take on incumbent carriers in at least 30 markets outside
its traditional region -- nine of them by year's end.
Ever since the
Bell local phone companies emerged from the old American Telephone and Telegraph
Company in 1984, theirs has been a cozy club. With their mutually exclusive
territories, they have reaped the fruits of their dominance as relatively
friendly neighbors.
Now, for the first time, that truce is breaking in a
big way. SBC is invading the territories of BellSouth, Verizon (which includes
what used to be Bell Atlantic and Nynex) and Qwest Communications (which
includes what used to be U S West). In so doing, SBC hopes to siphon $1 billion
in annual revenue from its Bell brethren within two years.
For some
people, the competition is long overdue. After the Telecommunications
Act of 1996 relaxed many of the regulations that had bound the
communications industry, regulators and consumer advocates hoped to see the
benefits of competition. Instead, the local phone companies embarked on a binge
of buyouts. In a few years, as the seven original Baby Bells dwindled to four,
consolidation seemed to replace competition as the industry watchword.
But more recently, regulators have made competition a condition for
approving the biggest mergers. That is why SBC, which acquired Ameritech last
year, is now under a Federal Communications Commission obligation to begin
invading local markets outside its home territories.
And Mr. Powers,
among others, says bring it on.
"When I heard about SBC from a friend of
mine I said, 'Any new company in this business is good for competition,' " Mr.
Powers said. "Auto glass is a highly, highly competitive business, and it's
being consolidated every day by the larger worldwide companies. Any time that
competition is injected into any industry it makes it better for the people
using the product."
It was certainly convenient that Mr. Powers's friend
was an SBC sales representative. But SBC, based in San Antonio, cannot rely on
personal connections for all, or even most, of its sales as it enters new
territory.
And that raises the key question: is SBC serious? Will SBC's
expansion strategy, which it says will include offers for both voice and data
services to business customers and consumers, become the major force for
competition that it certainly can? Or is this all a Potemkin village, meant to
impress regulators?
SBC officials say they mean business. "We have set
out to be a true communications partner for our customers, to really be a
one-stop shop," said Ron Blake, president of the new SBC unit. "We can't do
everything at once but we want to be able to serve all of our customers' needs,
and we certainly want to sign up a lot of them."
But suspicion may be
natural because SBC's expansion initiative is being orchestrated under a deal
with the government.
On May 11, 1998, Edward E. Whitacre Jr., SBC's
chairman, stood up at the Waldorf-Astoria hotel in Manhattan, announced that his
company had agreed to acquire Ameritech and almost immediately began talking
about how the combined company would invade the territories of the other Bells
under what has been called SBC's "national-local" plan.
Certainly the
plan, if done right, could provide a big new revenue opportunity for SBC; with
essentially zero market share in the 30 target markets, the only direction to go
is up. But ever cynical, many communications executives, analysts and
journalists immediately suspected that Mr. Whitacre's appeal was directed more
at the regulators who had to approve the deal than at customers. Having already
acquired one of the other Bell companies, Pacific Telesis, SBC would surely have
to make major concessions to push through the Ameritech deal.
And lo, 13
months later, in June 1999, SBC announced an agreement with the F.C.C. under
which the regulators would approve the takeover and SBC would go through with
the national-local plan it had announced the previous year, among other
conditions.
"There is nothing new about the national-local plan except a
guarantee that it will actually be performed," Bob Atkinson, the lead F.C.C.
lawyer who negotiated the pact, said at the time.
In a statement last
week, William E. Kennard, the F.C.C. chairman, said: "The purpose of the merger
condition is to topple the status quo and further advance competition in local
telecommunications markets. We look forward to seeing these companies providing
customers with new services and lower prices in the near future."
Tomorrow is the deadline for SBC to certify to the F.C.C. that it has
opened shop and signed up at least three customers -- of any type or size,
business or residential -- in the first three of its new markets, Boston, Miami
and Seattle, a target the company says it has already met.
By the end of
the year, SBC will also have entered Fort Lauderdale, Fla., New York,
Washington, Baltimore, Atlanta and Philadelphia, in roughly that order. SBC
plans to deploy communications switches and other equipment in at least 30
markets outside its region by 2002.
And Mr. Whitacre bristles at the
suggestion that this could all just be window-dressing wrapped around the
Ameritech acquisition. "That's really not the case," he said last week. "We
really did want to do this. The political side was really not ever part of it. I
guess we didn't publicize all that much before, but it's something we've wanted
to do for a long time. This is something we are very serious about."
It
is tough to argue with that assessment after a visit to West 26th Street in
Manhattan. There, on the ground floor of a cavernous building that SBC shares
with dot-com companies and modeling agencies, among others, is a hulking
Caterpillar diesel engine that has been installed to provide backup power for
SBC's communications gear.
Upstairs, SBC has contracted to sublet 27,000
square feet from Williams Communications, which also provides SBC with
long-distance communications capacity. This is mostly a Lucent shop. Technicians
were installing a new voice telephone switch made by Lucent Technologies and
were installing racks for more advanced equipment that uses a technology called
asynchronous transfer mode, which helps transmit voice, video and data
communications on a single network.
On the other side of a wire mesh
wall, Williams technicians were installing complex optical networking equipment
made by Nortel Networks and Cisco Systems.
Mr. Whitacre said that early
next year SBC would unveil a major marketing and advertising campaign aimed at
building the SBC brand outside the company's traditional markets. The company's
deal with the F.C.C. requires SBC to provide local phone service under the SBC
brand to any consumer in the covered markets who want it. So when that
advertising begins, SBC may get serious about serving consumers.
To
start, however, business customers are clearly the focus. In the 26th Street
lounge, for instance, is a map showing the local Verizon switching offices where
SBC is installing equipment. Only one is in Brooklyn and another is in the
Bronx. But eight are in the business corridors of Midtown and Lower Manhattan.
In a cramped suite of offices in the Chrysler Building, Lorraine Davis,
who runs the New York sales force, was making her initial push by focusing on
business customers that spend at least $25,000 a month on communications
services. SBC plans to begin offering services in New York next month, and on
one office wall there was a plan for pitching a major Manhattan law firm. The
sales representative who used to handle the law firm for a rival communications
company was recently hired by SBC and is now plotting to win the account for his
new employer. By the end of this month, Ms. Davis plans to manage a New York
sales staff of about 100 people.
"You have a tremendous amount of
opportunity here," she said, "but all the competitors are also here."
And that is a big reason why, in the end, many telecommunications
experts expect the real opportunity for SBC to be serving the branch offices of
big corporations that already use SBC back home -- companies like, say, the auto
giants that use Ameritech around Detroit.
"In general, the out-of-region
strategies are really going to be a way to serve in-region customers with
out-of-region needs," said Megan Kulick, a telecommunications analyst at Merrill
Lynch. "Is SBC going to be a major competitor across the board in New York?
Probably not. They just don't have a competitive advantage in that market. For
them to commit a big amount of resources to compete against an incumbent who has
a big advantage obviously would not be wise."
William J. Rouhana Jr.,
who as chairman of Winstar Communications Inc., a small competitive local
communications company based in New York, has an interest in SBC's failure,
predicted: "They're not serious. They will do the minimum they have to to meet
the regulatory requirement they face."
Almost the entire cadre of
competitive local phone companies is in the dumps right now, with their stocks
near all-time lows, but many regulators believe the Bells have it in them to
become powerful competitors.
As a condition of their merger to create
Verizon, GTE and Bell Atlantic this year agreed to a set of expansion conditions
somewhat similar to SBC's. But because GTE was not a Bell company subject to
special rules, regulators appeared to have less leverage over the Bell Atlantic
deal than they did over SBC's acquisition, and Verizon has much more flexibility
than does SBC to put its concessions into effect.
As a company that will
a bear much of the brunt of SBC's offensive, Verizon, at least, is not taking
its latest competitor lightly.
"They are one of the top
telecommunications companies," said Thomas J. Tauke, Verizon's senior vice
president for public policy and external affairs. "We expect SBC to be a major
competitor across the country."
http://www.nytimes.com
GRAPHIC: Photo: Garry Schumann, an SBC facilities
technician in New York, at the computer, shows Ronald L. Blake, left, president
of SBC Telecom, the company's digital access cross-connection systems that
connect SBC equipment to the outside world. (Barbara Alper for The New York
Times)(pg. C4)
Drawing: SBC is planning to compete in nine cities
outside its local territory: Boston, New York, Philadelphia, Baltimore,
Washington, Atlanta, Seattle, Fort Lauderdale, Fla., and Miami. (Drawing by
David Suter)(pg. C1)
Chart: "Next Wave"
Local telephone
markets that SBC intends to enter after this year.
2001
1st. qtr.
Phoenix
Minneapolis/St. Paul
Denver
Nassau/Suffolk Counties., N.Y.
Bergen/Passaic Counties., N.J.
Newark
Middlesex County, N.J.
2nd qtr.
Orlando, Fla.
Tampa/St. Petersburg, Fla.
Salt Lake City
West Palm Beach, Fla.
Portland, Ore.
Charlotte, N.C.
3rd qtr.
Buffalo
Memphis
Nashville
Raleigh/Durham, N.C.
Norfolk, Va.
Louisville, Ky.
4th qtr.
New Orleans
Las Vegas
2002
1st. qtr.
Tucson, Ariz.
(Source: SBC)(pg. C4)
LOAD-DATE: October 9, 2000 
