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
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rjmcmahon 12/4/2012 | 9:20:55 PM
re: Whitacre: Regulations Will Wither Light-bulb; The flaw in your logic is the belief that voice is what matters. That would be like living during Samuel Insull's day and never believing his electricity could ever replace gas or kerosene.

PS. Don't worry about those living fantasy land as they are just fine. Worry about those living in darkness. Do your best to shed some light and help them out of their caves. Good luck.
photon_mon 12/4/2012 | 9:21:00 PM
re: Whitacre: Regulations Will Wither Amen! Now THAT was one heck of a rant, Light-bulb!
The government's "inverse Midas touch" (gold to
excrement) in our industry is unfortunately well-
documented. Hopefully the FCC will quickly (for
them, that is) back away from the train wreck that
it helped to create. Hurray for capitalism! Now
go rest those typing fingers - you deserve it!
Light-bulb 12/4/2012 | 9:21:03 PM
re: Whitacre: Regulations Will Wither After many months I'm amazed that people are still talking about exactly the same thing. RJM, I knew enough to stop debating with you for one simple reason. You live in a Fantasy land. "Yes let the CU Fairies come and claim all the CU from the Evil Doers! (The RBOCs Of course)" Please! Let me guess you believe that the world doesn't grow and their is now no need for laying more CU in the Ground? Yea. Yes I say Screw the RBOCs Make them turn over their CU ownership and lets make new housing developments do without dial services! Yes I can see that happen here in Denver. No one puts in CU because it doesn't belong to anyone. Yup I want to run out and invest in something I can never own... So who is to keep laying CU for new housing developments? Business parks? Oh right I think you said the Government... oh wait I suppose they'll need to sub it out to someone who can handle that big of a job... Oh an RBOC! People are living in a friggin Fantasy land. RBOCs are going nowhere, deal with it and enjoy the phone service you have. Competition does exist! Cell phones lets say Cricket if you will, one low price unlimited local calls plus LD Uh yea your right thats not competition for an RBOC its a Steal! Whoever said Cell is akin to Solar panels is an idiot I'm sorry but an IDIOT! Solar panels cost on Average 22x more than an equivalent power generation using coal and natural gas. So there was never competition there. PLUS you could not build arrays large enough to power homes without some serious investment in real-estate. (Rapidly Changing but nonetheless) So put that one back on the Shelf. Hmm did Solar ever have a 32% penetration rate? Oh I guess not. Cell phones Constitute a REAL threat for Local dial services for RBOCs. Solar was a damn pipe dream for the tree-hugging hippies living in the middle of nowhere.
Companies ALWAYS want it easy as do humans by our nature. I would love to have free and clear access to something that wasn't mine. Free to use whenever I liked... Free to charge more than I had to pay... Hmm pretty easy business. Except they all FAILED! Let the RBOCs be. FCC get out of trying to control all the Positive competition because if you look at the track record everytime and I do MEAN everytime the government tried to help competition by regulating or shall I say hamstringing the incumbent its always gone sour. If a company can not make its own business plan a success without the intervention of the government? I know RJM you will say... it was a natural monopoly that the government helped create blah blah... yup and your point? Here they are shall we take away the positive track record the RBOCs have? Lets face it 100 years of phone isn't too bad. Government forcing competition only starves the consumer. Though it takes years to really understand that. I say repeal the 1996 Act. The RBOCs will always be regulated and I'm fine with paying my bill.

shunt 12/4/2012 | 9:21:35 PM
re: Whitacre: Regulations Will Wither -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.

Hhahahahahaah yay for the new generation of Michael Powell wannabees...sorry, youll never make it in his world unless your dad...ok i wont go there

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

Thanks for reinforcing my theory that popular culture is stupid americans form of Zionism...right on dude!
TelCoEngineer 12/4/2012 | 9:21:35 PM
re: Whitacre: Regulations Will Wither The issue IS the cost structuring. In some states, the ILEC is required to lease UNE-P access to the CLEC's at far below (in some cases less than 1/2!) what it costs to generate the dial tone and maintain the network...


Less than half? Really? Bulls$#%. If the ILECs fired the lawyers that spend all there time trying to stifle competition and lock out the CLECs they could reduce their overhead costs by more than half.

I remember the early days (94 to 96) when there was no real rules for interconnecting the networks. Interconnection meetings consisted of me (the technical guy), our lead council and about a dozen ILEC lawyers - none of them technical.

It has never been about the cost, it has always been about control. Having a monopoly is kind of like having a drug habit - you can never really shake the need for another hit.

Get over it. The rate payers bought those Network Elements about 50 times over long ago.
bill2you 12/4/2012 | 9:21:36 PM
re: Whitacre: Regulations Will Wither The issue IS the cost structuring. In some states, the ILEC is required to lease UNE-P access to the CLEC's at far below (in some cases less than 1/2!) what it costs to generate the dial tone and maintain the network. Additionally, in SBC's defense, they are a facilities based CLEC in 30 MSA's. Ever heard of SBC Telecom?
rjmcmahon 12/4/2012 | 9:21:51 PM
re: Whitacre: Regulations Will Wither The RBOCs may have been able to delaying progress by a generation but they have not won, nor can they ever win. Those that win will actually build something. The RBOCs have never built nor will they ever learn how.

There does seem to be many lessons from previous infrastructure build outs, as well as other things such as participatory social contracts. Decentralizing ownership and control while increasing participation is a valueable lesson.

But the lesson that seems most overlooked, likely due to the nature of market, is to decentralize cash flows. Look to Dee Hock and Visa International for an example of that.
rjmcmahon 12/4/2012 | 9:21:51 PM
re: Whitacre: Regulations Will Wither With wireless, the natural monopoly arguement for regulation of the LEC's is lost.

Good try, but no cigar. That's like saying the advent of solar panels has elminated the need to regulate our electrical transmission and distribution infrastructure.

The real issue for the RBOCs and regulation is that States cannot afford to let go of their portion of the voice revenue streams -- though the RBOCs sure believe that federalizing their monopoly would allow them to write graft payments to one capital instead of 51. They must see it as consolidation and cost reduction of their graft, though their annual report would never be so honest.

Unfortunately, it's not in the public interest to give the RBOCs this federal monopoly. A lesson all states better learn quickly, otherwise their coffers will get robbed just like SBC and Enron have done to CA.

If the RBOCs want to be treated as a unregulated information service, make them first donate all their CU loops to alarm companies and get out of the local loop business completely. They then can practice what they preach by building their own fiber loops without any tax payer subsidy.
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 ;-).

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).


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