Whitacre: Regulations Will Wither
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