AT&T's Dorman Disses RBOCs

NEW YORK – Dave Dorman, president, chairman, and CEO-elect of AT&T Corp. (NYSE: T) took a few swipes at RBOCs today, at the UBS Warburg Telecom conference, as the debate about regulation heats up.

While he said that AT&T is working on ways to provide its own switching technology for local services, Dorman argued that leasing a competitor's facilities is the only way for a competing telecom carrier to enter the market today.

“I’m tired of [Edward E.] Whittacre [CEO of SBC] saying we’re not real men because we won’t build out our own facilities,” he groused. “If I tried to build a whole new network in Los Angeles they’d cart me off to the looney-bin. It’s not practical.”

Dorman contends that UNE-P is part of the quid pro quo that comes along with the RBOCs entering the long-distance market. But he admits that UNE-P, the provision in the 1996 Telecom Act that requires incumbent carriers to lease their facilities to competitors, will likely go away.

In the local markets, AT&T is using this unbundling provision to offer competing local service in regional Bell operating company (RBOC) territories. Like the CLECs, AT&T is leasing RBOC facilities to provide these services. The RBOCs have been fighting against UNE-P for the past eight years.

Disclosing that the residential long-distance market, which is still a large portion of AT&T’s overall revenue, is down 25 percent from last year, Dorman said the carrier is looking to other markets for growth. Its year-over year EBIDTA is down 50 percent as well. As this market continues to decline, AT&T is looking toward the local voice and data market as well as the wireless market as key aspects of its strategy to boost its long-distance business.

Dorman claimed AT&T is already making significant headway in these markets, as it expects to soon be in at least 93 cities nationwide.

Ivan Seidenberg, CEO of Verizon Communications Inc. (NYSE: VZ), one of the largest RBOCS, added another proof point when he spoke this morning at the conference. He confirmed publicly that line loss to UNE-P will be up in the fourth quarter from the third quarter, something investors had suspected but were not certain of until today.

But the future of UNE-P is far from certain. And Dorman acknowledged this fact.

“I agree that UNE-P won’t be around forever. Wireless and cable are already affecting competition in the local loop. And as momentum grows, demand for UNE-P will likely go down.”

In the short term, Dorman argued that customers are better off with competition provided through UNE-P. As an example, he mentioned that SBC Communications Inc. (NYSE: SBC) had lowered consumer prices within six months of AT&T offering local service in Michigan. Later, he said, when AT&T started offering local service in California, SBC lowered its prices in anticipation.

SBC has been hit even harder than Verizon by the entrance of interexchange carriers like AT&T into the local market, said John Hodulik, a telecom analyst with UBS Warburg. The prices set by regulators in the western territory that SBC covers are lower than the prices set in the eastern region where Verizon operates. As a result, AT&T and others have been able to drastically undercut SBC’s pricing. SBC's Whittacre is scheduled to speak at the UBS Conference tomorrow.

But regulators appear to be behind the RBOCs when it comes to UNE-P. And everyone, even Dorman, seems resigned to the fact that some sort of change is likely to occur. So far, no one knows how these rules will be changed. It could be phased out slowly or stopped all at once, said Warburg's Hodulik.

“It all depends on the how UNE-P is changed by the regulators. But even if it were completely eliminated, I don’t think it would be devastating for AT&T.”

Hodulik believes AT&T’s wholesale business to wireless providers will likely pick up the slack, given that AT&T already has 50 percent of this market.

— Marguerite Reardon, Senior Editor, Light Reading
beowulf888 12/4/2012 | 9:22:01 PM
re: AT&T's Dorman Disses RBOCs AT&T cable is offering me local service over it's cable infrastructure. Their voice over cable services wouldn't be affected by UNE-P demise would it?

I'm not very clear about the architecture of their network, but I assume that my voice over cable hits some sort of CATV box acting as a gateway from VoIPoCable to a VoTDM network and then over to a Tandem switch (?) I assume that a call wouldn't touch a RBOC network without being handled by a class 4 switch.

If this is true, then UNE-P wouldn't have any impact on AT&T's voice over cable service.

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