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Optical/IP

Whitacre: Regulations Will Wither

NEW YORK -- Hand it to SBC Communications Inc. (NYSE: SBC) chairman and CEO Edward E. Whitacre Jr. -- he may prefer one drum, but he sure knows how to bang on it steadily.

Whitacre virtually gloated in victory, with a cheery presentation about the end of the RBOC regulatory era here at the UBS Warburg telecom conference in New York today.

SBC has been the most vocal of the Bells in its dissatisfaction with regulations that allow competitive telcos to lease lines and equipment on their networks at fixed, wholesale prices. Last month, Whitacre blamed the regulations for the loss of about 750,000 unbundled network elements platform (UNE-P) lines to competitors in the third quarter this year alone, indicating that service to the company’s customers could suffer if UNE-P is not discontinued (see What's Next for UNE-P?). And in September, SBC charged that losses due to UNE-P were forcing it to lay off 11,000 employees (see SBC's Fed Up, But So Are Its Critics).

Whitacre expects the Federal Communications Commission (FCC) to find in favor of the RBOCs when it makes its final decision on the matter by year's end.

"I believe that the outlook for change is good right now," he said. "The outlook is improving. We hope that the rules will be improved to inspire investment... I believe that the best days are ahead for SBC."

At his lunch presentation today, Whitacre said the UNE-P “exploitation” continues, but “It’s clear to me that [FCC Chairman Michael] Powell understands… I am positive that the FCC will arrive at a positive outcome.”

While not all industry observers think that UNE-P should be abandoned, most seem to think that that’s the direction things are headed. “I think it’s going to happen on the business side,” says Network Conceptions LLC analyst Phil Jacobsen. “And I think it’s probably going to happen on the residential side even though [it doesn’t make sense].”

Jacobsen says he agrees with AT&T Corp.'s (NYSE: T) president, chairman, and CEO-elect David Dorman, who bashed the RBOCs at the UBS conference yesterday (see AT&T's Dorman Disses RBOCs). "I’m tired of Whitacre saying we’re not real men because we won’t build out our own facilities," Dorman carped. "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."

However, Dorman also admitted sadly that UNE-P seems to be on the way out.

The ILECs, of course, insist that the regulations are necessary to ensure competition in the industry, and point out that the RBOCs have increasingly been allowed to offer long-distance services in their territories in return for UNE-P.

Whitacre crows that he’s optimistic about the company’s push into long distance as well. Once the FCC has approved SBC’s long-distance license in California, he said, the company will have regulatory approval in two thirds of its states. “We’re ready for California." He also said that SBC expects to get approval for the Ameritech states by mid-2003.

While it could make sense for competitive carriers to service the business market with their own facilities, Jacobson says that taking away UNE-P in the residential market will just mean removing all competition for the RBOCs. “There are simply no CLECs providing residential facilities-based services today,” he says, warning that the removal of competition in the residential market will allow the RBOCs to create a cash-cow that will eventually break competition in other areas as well.

SBC’s problems are not completely over, however. While the company waits for regulatory relief, Whitacre says that it will continue to cut back on its capital spending. He said the carrier doesn’t intend to spend more than $5 billion in 2003. That’s down from $7.5 billion this year and $11.2 billion last year. “We have the best balance sheet of anyone in the business, [but] no amount of cost-cutting will offset what’s going on out there today… A big part of the answer is reforming the rules to reignite investment…”

The capex cuts will mean even more pain for already hard-hit equipment vendors. Whitacre said he worries about the problems the equipment manufacturers are going through, saying that their struggles mean less research and development in the industry. “UNE-P keeps us from investing… and our competitors don’t invest."

SBC saw its shares drop 4.54 percent in trading today, falling $1.19 to $25.01.

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com
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beowulf888 12/4/2012 | 9:22:01 PM
re: Whitacre: Regulations Will Wither Whitacre sez: "UNE-P keeps us from investingG«™and our competitors donG«÷t invest."

Huh? At some point these calls leave the RBOC's network. Are these competitors carrying calls without a network? They've invested -- it's just that they haven't invested in some very expensive legacy class 5 switches (but I bet they're paying more than their fair share per switch port!). In other words Whitacre's competitors have a lower cost structure. Well isn't that what competition is all about?

Whitacre's getting pretty cocky with that pre-MFJ attitude of his. He must have some FCC votes in his pocket.

--Beo
arch_dude 12/4/2012 | 9:21:59 PM
re: Whitacre: Regulations Will Wither OK SBC, you win, by government fiat. But we individual consumers are desperate for a way out from under your oppression, and we will jump at any chance. You have antagonized your customer base. As soon as we can get last-mile bypass cheaply, we will. The emerging class of 802.11b technologies can be implemented by individuals or very small companies.

In the late 1940's, consumers abandoned rail and other public transportation in droves, and transportation became completely decentralized. This occurred primarily due to customer dis-satisfaction with monopolistic practices, according to my older relatives.

Now it's your turn. If you do not believe that we
are pissed off, then you are living in a fantasy world. Go talk to the man on the street.
eyesright 12/4/2012 | 9:21:57 PM
re: Whitacre: Regulations Will Wither BBoy,

It's flat rate and cheap until there is no regulation or competition...wake up.
broadbandboy 12/4/2012 | 9:21:57 PM
re: Whitacre: Regulations Will Wither arch_dude wrote: "If you do not believe that we
are pissed off, then you are living in a fantasy world. Go talk to the man on the street."

Speak for your self, dude.

The "man in the street" doesn't care that much, one way or the other. Most people get one or two phone lines from the ILEC. They work. Power goes out, the phones still work. Compared to what we pay for lattes these days, the cost is not that high. And it's flat rate.

Remember, they made a movie about the cable guy, not the telephone guy.

BBboy
broadbandboy 12/4/2012 | 9:21:56 PM
re: Whitacre: Regulations Will Wither beowulf888 wrote: "Huh? At some point these calls leave the RBOC's network. Are these competitors carrying calls without a network? They've invested -- it's just that they haven't invested in some very expensive legacy class 5 switches (but I bet they're paying more than their fair share per switch port!)."

It may come as news to you, but there are non-facilities based service providers. Even facilities based CLECs do not invest in the local loop. They lease copper loops (UNE-L) and they lease network elements (UNE-P). 80% of all spending on telecom networks is accounted for by incumbent carriers.

Second, where they did invest, most CLECs bought the same Class 5 switch technology as the incumbent, even though those costs had to be supported by a much smaller customer base.

That's why they went broke!

I challenge anyone to show me one profitable U.S. CLEC that opperates a totally next-generation network.

BBboy


"Don't take any course where they make you read Beowulf."
--Woody Allen--

broadbandboy 12/4/2012 | 9:21:56 PM
re: Whitacre: Regulations Will Wither beowulf888 wrote: "Huh? At some point these calls leave the RBOC's network. Are these competitors carrying calls without a network? They've invested -- it's just that they haven't invested in some very expensive legacy class 5 switches (but I bet they're paying more than their fair share per switch port!)."

It may come as news to you, but there are non-facilities based service providers. Even facilities based CLECs do not invest in the local loop. They lease copper loops (UNE-L) and they lease network elements (UNE-P). 80% of all spending on telecom networks is accounted for by incumbent carriers.

Second, where they did invest, most CLECs bought the same Class 5 switch technology as the incumbent, even though those costs had to be supported by a much smaller customer base.

That's why they went broke!

I challenge anyone to show me one profitable U.S. CLEC that opperates a totally next-generation network.

BBboy


"Don't take any course where they make you read Beowulf."
--Woody Allen--

duggins64 12/4/2012 | 9:21:55 PM
re: Whitacre: Regulations Will Wither G«£No company will invest billions of dollars to become a facilities-based broadband services provider if competitors who have not invested a penny of capital nor taken an ounce of risk can come along and get a free ride on the investments and risks of others.G«•

C. Michael Armstrong, Chairman & CEO, AT&T, Remarks before the Washington Metropolitan Cable Club, Telecom and Cable TV: Shared Prosperity for the Communications Future (Nov. 2, 1998).


Do you think CMA has been gloatting for the last couple of years since SBC started their $6B Project Pronto? At least smiling? That will teach 'em to put fiber in the ground.
broadbandboy 12/4/2012 | 9:21:55 PM
re: Whitacre: Regulations Will Wither esesright wrote: "It's flat rate and cheap until there is no regulation or competition...wake up."

Ever hear of cell phones and cable modems? That's the only real competition in residential. They don't need UNE.

Yawn,

BBboy
whyiswhy 12/4/2012 | 9:21:54 PM
re: Whitacre: Regulations Will Wither With wireless, the natural monopoly arguement for regulation of the LEC's is lost. Make IXC's a shared commercial trust, and we do not need the FCC regulating much of anything (except spectrum).

JMHO

-Why
beowulf888 12/4/2012 | 9:21:52 PM
re: Whitacre: Regulations Will Wither BBBoy wrote:
"They lease copper loops (UNE-L) and they lease network elements (UNE-P). 80% of all spending on telecom networks is accounted for by incumbent carriers."

Lease is the operative word. Actually cajoled into leasing would be a better description. But for all the RBOC's whining, I don't think they're losing money on these leases. Telco accounting is infamous for being less than straight forward. It's sort of like a movie studio claiming that a movie that cost $70 mil to make, and grossed $150 mil, lost money.

Anyway, local loop revenue is falling (at least according to a recent analysis by Howard Anderson of the Yankee Group). And long distance isn't a lucrative market anymore. RBOCs are going have a tough row to hoe. But don't ask me shed any tears for them -- because they're not whining because UNE-P is costing them anything, they're whining because UNE-P is creating pricing competition -- and that's starting hurt the profitability of their cash cow.

I'm sure it irks Whitacre to no end those idiots running the Cable companies continue to make money (probably because they were smart enough not shell out 150 gigabucks for worthless 3G spectrum licenses ;-).

cheers!
--Beo
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