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SBC's $6 Billion Banquet

Light Reading
Supercomm News Analysis
Light Reading
6/22/2004

CHICAGO – Supercomm 2004 – SBC Communications Inc. (NYSE: SBC) will spend as much as $6 billion in the next five years on an extensive fiber-to-the-neighborhood (FTTN) project, as long as the economy holds up and industry regulators don't intefere, said CEO Ed Whitacre in this morning's opening keynote speech here at Supercomm.

Sounds great, eh? Whitacre said SBC was committed to providing greater bandwidth and more applications to its customers, and that the best way to do this was to push ahead with an FTTN program that would deliver high-speed Internet access, voice-over-IP, and video across connections of between 15 Mbit/s and 20 Mbit/s.

The news comes just a day after Cablevision Systems Corp. (NYSE: CVC) announced a series of price cuts on its packages of cable television, voice, and high-speed Internet service, perhaps signaling that the battle between multiple system operators (MSOs) and the large telecom service providers is about to enter a climactic stage. Large incumbent telcos like SBC lack the crucial video piece to compete with the cable companies, which are rapidly adding voice services. (See Video Profits on Pause?)

SBC's video service has been developed in conjunction with Microsoft Corp. (Nasdaq: MSFT), and Whitacre noted that SBC is the first carrier to be trying out the software giant's new IP TV system.

"We're working with Microsoft to provide IP TV services over the new network. This is really exciting stuff. It will deliver richer, more interactive services in a way that today's networks cannot, and this will set the stage for full competition against the cable operators."

Observers at Supercomm, where triple-play (voice, video, and data) technology has become a big theme, say that the incumbent telecom providers have no choice but to step up their technology deployments to compete with the cable companies.

"It's all about triple-play and the MSO threat, and incumbents can't deliver it over the existing infrastructure," says Jim Dondero, vice president of marketing with the wireline networks division of Nortel Networks Ltd. (NYSE/Toronto: NT). "They need to offer higher speeds to the home and the office."

SBC's numbers -- "$4 billion to $6 billion" -- are big ones, but keep in mind that's spread over 5 years, so it could add up to less than $1 billion per year. Competitor Verizon Communications Inc. (NYSE: VZ) has pledged to spend $1 billion in 2004 on fiber access (see Verizon Suppliers Get Good News). Both SBC and Verizon budget more than $10 billion per year on emerging telecom technology, and overall capital expenditure is poised to rise this year for the first time since 2000 (see Packets Key to Capex Comeback, Carrier Capex Set for 2004 Rebound, and LR Report Reveals US Capex Plans) .

Whitacre did provide a few caveats. He said that a downturn in the economy and regulatory inteference from the Federal Communications Commission (FCC) can stand in the way of the project. "With the right kind of regulatory treatment, this project can transform our business. Our new network will be the fastest and most capable network in the U.S. We need to guard against external [factors], but I'm sure we'll get there."

— Ray Le Maistre, International Editor, Boardwatch, and R. Scott Raynovich, US Editor, Light Reading

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lightbeer
lightbeer
12/5/2012 | 1:31:36 AM
re: SBC's $6 Billion Banquet
to say this is all BS. Whitacre has as much credibility as Ken Lay. This guy has been spewing press releases every year on cue for the last five years about how SBC is going to spend a Billion Gazillion dollars on Fiber to the Home and kick the Cable Guys Ass. Pure wall street fodder. The big question is are the Wall Street guys goinf to believe Mr. Chicken Little.
materialgirl
materialgirl
12/5/2012 | 1:31:35 AM
re: SBC's $6 Billion Banquet
If the "right regulation" means giant subsidies from the rate base that he can invest partially in his network and then take home the rest, some building will get done.

As to video services between a RBOC and MSFT, what a joke. Perhaps they will concentrate on training videos or something. No only will the system never work, but no one will want to watch it.
lutz@lightriver.com
[email protected]
12/5/2012 | 1:31:32 AM
re: SBC's $6 Billion Banquet
This will be the second time around for SBC and Microsoft. At the time though it was SWBT and the technology was a full Duplex ATM network. The equipment vendor was BBT out of NC. On the content side it was the Americast Consortium that brought together the content providers and a group of RHCs. In the West it was Pacific Telesis with the the TeleTV consortium. This was a before it's time trial that was deployed in Richardson, Texas. Microsoft bailed out of the project when they discovered the internet existed. They kind of left SWBT holding the bag but they really had no contractual obligation as SWBT was getting them to do the trail basically for free with the promise of profits coming with wide spread deployment. All the software that glued together the provisioning, subscriber management, billing and set top box had to be developed by independent vendors ..... and made to work together, which it never really did very well. Things have come a long way since the early 90s, it will be interesting to see if they make it to deployment.
rjmcmahon
rjmcmahon
12/5/2012 | 1:31:31 AM
re: SBC's $6 Billion Banquet
To add a little perspective, and if memory serves, CEO Brian Roberts testified to Congress that Comcast invested $85B over three years on their infrastructure upgrades.



rjmcmahon
rjmcmahon
12/5/2012 | 1:31:28 AM
re: SBC's $6 Billion Banquet
Survival is why SBC has decided to spend big bucks.

SBC spent $34.4B on operating expenses and $5.2B on capital expenditures in 2003. My guess is they're not spending big bucks on wireline infrastructure and they never will.

If our society is going to enter the modern age, we'll need to find somebody else to do the job.
rjmcmahon
rjmcmahon
12/5/2012 | 1:31:28 AM
re: SBC's $6 Billion Banquet
Correction -- found the testimony. It was $85B over 8 years by the entire cable industry. From Roberts testimony to the Commerce committee.

In the eight years since the [1996 Telecom] Act, the cable industry has had a renaissance. We have made massive investments in both video and broadband – over 85 billion dollars to date by the industry as a whole, and 39 billion dollars of investment just by Comcast and our predecessor companies in the markets where we now do business. You can see the dramatic rise between 1998 and 1999, when investment almost doubled from 5.6 billion to 10.6 billion. As we approach 100% completion of the rebuild, the numbers begin to level off and drop slightly year-to-year.


http://commerce.senate.gov/hea...

It's worth noting that they Cable cos think they are almost finished with their network "upgrade" This suggests that the facilities based competition, espoused by incumbants, will never motivate the deployment of a modern communications infrastructure.
lastmile
lastmile
12/5/2012 | 1:31:28 AM
re: SBC's $6 Billion Banquet
Survival is why SBC has decided to spend big bucks.
The earlier spending spree news was just a gimmick.
The regulatory environment was uncertain.
It's all about triple-play and the MSO threat.
This time the spending will be for real.
5 years down the road the MSO's will need to upgrade to survive.
opinion
opinion
12/5/2012 | 1:31:27 AM
re: SBC's $6 Billion Banquet
Any idea on who will stand to get the benefits (sales) if this is true ? Who has the best FTTx solutions ? Cisco, AFC, NT ?
optical Mike
optical Mike
12/5/2012 | 1:31:24 AM
re: SBC's $6 Billion Banquet
Who has the best FTTx solutions ? Cisco, AFC, NT ?

Optical Solutions first FTTH system was deployed in 1996 and there have been many improvements since then, we are presently deploying GPON systems while the RBOC's have yet to light up their first BPON system outside of the lab.

http://www.opticalsolutions.co...
rjmcmahon
rjmcmahon
12/5/2012 | 1:31:18 AM
re: SBC's $6 Billion Banquet
During the height of the bubble MSFT tried to get side door access into Hollywood videos through some Intertainer investments. The following letter from the Intertainer CEO is quite revealing. It suggests who is in the drivers seat when it comes to mass market entertainment videos.

"In September of 2002, Intertainer filed a $1.6 billion antitrust suit in the Ninth Circuit of Federal Court against Sony, Time Warner, Universal and Movielink. We came to this decision reluctantly from the searing experience of the last six years when along with a group of talented engineers, we built the first Video On Demand company. We had as shareholders three of the largest media companies in the world: AOL Time Warner, Sony, and Vivendi Universal. Sony had a board observer seat and all of the others had access to our most secret documents, architecture and business plans. For the first three years of our life they gladly supplied us with thousands of films for our service while we slowly built and market tested our software and security systems. But literally on the day we deployed the service nationally, everything changed. They cut off our film supply and almost immediately began to plan their own competing service Movielink, hiring away our most crucial software architects and doing everything possible to destroy our company.

http://www.intertainer.com/
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