SBC Ratchets Up PON Politics
In the latest development, Edward Whitacre Jr., CEO of SBC Communications Inc. (NYSE: SBC), this week appeared to backpedal on SBC's support of a closely watched RBOC FTTP initiative.
In a speech given at a Morgan Stanley conference in Boston on Tuesday, Whitacre indicated that SBC had no incentive to build out FTTP, which requires passive optical networking (PON), because the costs of equipment and trenching are still too high. He also criticized the Federal Communications Commission (FCC) rules that require RBOCs to provide a channel for competitors in every situation where it replaces copper with fiber (see Fiber Surprise in FCC Rules? ).
Political comments from Whitacre are nothing new. He's often lashed out against government regulations (see Whitacre: Regulations Will Wither). But his cautious comments run counter to the recent swell of hype and hope for FTTP, which has helped buoy the stocks of access players such as Alcatel SA and Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI).
In one sense, not a whole lot has changed. Few folks have assumed that the slow-moving RBOCs would plunge headfirst into aggressive PON deplyment. And SBC has long been thought to be the least aggressive RBOC on the PON front -- with Verizon Communications Inc. (NYSE: VZ) and BellSouth Corp. (NYSE: BLS) leading the charge. On June 19, SBC joined with BellSouth and Verizon in issuing a long-awaited request for proposal (RFP) for PON technology, set for resolution by the end of the year (see RBOCs Hungry for Fiber, Vendors Await FTTP Shortlist, and Analysts Narrow RFP Odds).
"SBC will likely wait and see how Verizon does," says Sam Greenholtz, a principal with Telecom Pragmatics Inc. "FTTP will happen, but it's going to be slow and they will only do the easy jobs first."
One other analyst says that SBC's recent comments are tantamount to backing out. In a note today on AFC -- which is said to be on the shortlist for the RFP, along with Alcatel, Motorola Inc. (NYSE: MOT), and Quantum Bridge Communications Inc. -- analyst Joe Noel of Pacific Growth Equities Inc. says: "Officially, while SBC is saying they are staying in the joint RFP, they are also indicating their intent is to participate as an observer only..." He views SBC as "not a real participant in the RFP/FTTP process. We believe this event greatly reduces the importance of this RFP to potential equipment vendors."
SBC may be using its moment in the Sun to pressure the FCC into throwing even more bones to the RBOCs to stimulate an FTTP buildout. Some analysts think this might be a mistake.
"My first reaction was that this... is a big blow not only to FTTP but to the telecom industry as a whole," says Danny Briere, CEO of consultancy TeleChoice Inc. "A lot of morale has been riding on the FTTP contract." By throwing down the gauntlet to the FCC, Briere says, Whitacre also made the PON industry feel "conned."
What about the other RBOC participants in the FTTP RFP? Verizon spokesman Mark Marchand won't comment on the Whitacre speech. But he says the RFP's still on, though no deployment plans have been revealed. Analysts may have speculated a lot, he says, but Verizon hasn't said what it will do with the RFP once it's done.
According to Brent Fowler, a spokesman for BellSouth, that RBOC is "committed" to the FTTP project and intends to keep moving on fiber buildouts.
Some view Whitacre's talk as an unpleasant but necessary wakeup call for those who insisted on viewing this RFP with rose-colored glasses. Others say it's just political banter, designed to get the FCC to ratchet up favorable rules to spur RBOC investment.
"My personal view is that the RBOCs don't have any real intention of doing FTTP," says Tom Nolle, president of CIMI Corp., a telecom consultancy. He has long held that the RBOCs are testing the waters with this RFP, but with no specific end in view (see A Closer Look at PON Econ).
On top of all this, Whitacre championed copper-based DSL (not FTTP or PON) as the "key product in our fast-growing data business" in Tuesday's talk. SBC has added 304,000 DSL subscribers in the second quarter of 2003, he said.
Whitacre apparently had lots more to say, such as that SBC would continue to cut its workforce and that 2003 capex would be about $5 million, the low end of its projected range. Unfortunately, SBC has pulled the Webcast from its site, so it's tough to determine just what went on.
SBC spokesman Selim Bingol says rumors that SBC is withdrawing from the RFP are exaggerated -- and he avers that SBC never stated its deployment plans. Further, SBC was hoping for "clarity" out of the recent Triennial Review from the FCC, and "it's not there." As a result, he says, SBC will deploy FTTP "selectively," next year, in "trials and small buildouts."
One analyst thinks there's a middle ground between being majorly devastated and too hopeful. "There will be some greenfield deployments next year," says Steve Levy of Lehman Brothers. After that, it's likely FTTP growth will increase among RBOCs. But the growth curve will always be small. There's no news in that. "You can't throw cold water where there's no fire," he says.
— Mary Jander, Senior Editor, and R. Scott Raynovich, US Editor, Light Reading