x
Regulation

SBC's Fed Up, But So Are Its Critics

Consider them casualties of war. The 11,000 employees about to be cut by SBC Communications Inc. (NYSE: SBC) might simply be pawns in the regional Bells’ ongoing battle against government regulations.

SBC used a layoff and capital spending cut announcement yesterday to kick off a rant against government telecommunications policy; it contends the poor economy and regulatory pressure are forcing it to cut 9,000 jobs before year end and 2,000 more jobs in the beginning of 2003 (see SBC Cuts Capex, Jobs). The news has fired up debate in the industry about RBOC lobbying in Washington and the current telecom environment. SBC says it needs to slash money because it's forced give competitors access to its networks. But critics say it's just more RBOC whining and that SBC’s war on the unbundled network elements platform (UNE-P) could be a very slippery slope (see MCI Criticizes BellSouth on UNE-P).

"SBC’s incredible press release is an amazingly risky gambit on their part,” Network Conceptions LLC analyst Phil Jacobson writes to Light Reading in an email. “They are treating defeat of UNE-P as an all or nothing deal. If they lose they will be in extremely deep trouble.”

SBC's layoffs, which constitute about 6 percent of its workforce, will occur across the 13 states in which it operates and will affect every department. About one third of the jobs being cut are management positions, the company says. The cuts come in addition to the 10,000 jobs SBC has already eliminated this year.

The company expects to take related accounting charges in its third and fourth quarters this year but wouldn’t say how large those charges will be.

In addition to reducing headcount, SBC also says it will slash its capital spending budget for 2003 to between $5 billion and $6 billion, down from an $8 billion budget for 2002.

The capex cut will certainly put additional pressure on the already very hard-hit telecom equipment vendor space. While Nortel Networks Corp. (NYSE/Toronto: NT) will probably be feeling the most pain from yesterday’s announced cuts, analysts say they expect most industry players to suffer. And there’s more trouble ahead. Observers say they expect other RBOCs will soon follow suit.

SBC seems to think that the regulations that followed the 1996 Telecommunications Act have had a lot to do with it. The company claims that the prices it is allowed to charge its competitors for the use of its local access lines is far below even what they pay for the upkeep of the lines. “In the Ameritech area, it may cost us $27 to provision a line, and our competitors are able to get the line for $14,” says SBC spokesperson Larry Solomon. That, he says is a problem not only for SBC, but for customers and the entire industry, since the competitors coming in to mooch off of SBC’s lines aren’t investing in building out the network.

"When unrealistic and outmoded regulation results in our having to lay off highly-trained workers and constrains our investment in our networks, it is a disservice to all local phone users in the states we serve,” SBC chairman and CEO Edward Whitacre stated in yesterday’s release. “After all, our competitors are relying on our network. And if there’s a weather emergency or other problem, it’s our workers who must respond.”

While most analysts agree that SBC and the other Bells are facing mounting competitive pressures from UNE-P, they say pricing has nothing to do with it (see RBOCs Should Stop Whining, Says Report). In a recent report titled “Access to the Network: Catalyst for Massive Change in Local Telecom,” Jacobson and fellow Network Conceptions analyst Farooq Hussain argue that the RBOCs are losing money not because of unfair pricing, but because they haven’t optimized their own cost structures and networks in order to make wholesale profitable. “The level of service they provide is minimal,” Jacobson says.

Yesterday’s release, several analysts say, was more than anything a ploy to force regulators to give SBC relief from competition. “I think that what they’re doing is extremely self-serving,” Jacobson says.

“We’re working with regulators to find a solution,” was all SBC’s Solomon would say on the issue.

The Federal Communications Commission (FCC) says there are multiple proceedings underway reviewing the regulations, which should be concluded by the end of the year. “No conclusion has been reached yet,” says an FCC spokesperson.

Craig Johnson, an independent analyst based in Portland, Ore., however, says that what the outcome of the proceedings will be is pretty clear. “I think Powell -- the guy is such a politician it’s amazing -- is going to cater to the Bells,” he says. “Money always talks in politics. The consumer will continue to lose.”

But SBC says relief from regulated UNE-P pricing will allow it to offer better service to consumers. The carrier blames the pricing for the nearly 3 million retail access lines it has lost so far in 2002, as well as for the more than $1 billion in revenue it lost in the first half of the year. If its wireline revenues continue to drop at the current rate, the company said, it will lose another $2.3 billion in revenues over the next four quarters.

But is SBC simply in denial about the degradation of its business?

"Gee how many of those lines went to wireless or were reduced because folks now only need one line for Internet access if they have DSL?” Johnson writes in an email to Light Reading. “If you do simple math, this stuff doesn’t add up… They overbuilt like everybody else.” Johnson also points out that the RBOCs were only too happy with the 1996 Act when it looked as if long distance would remain a lucrative business. The RBOCs agreed to open their networks to the competition in exchange for being allowed to apply for entry into the long-distance market.

The bottom line is, there are now more layoffs and capital spending cuts coming to the industry, with no relief in sight.

SBC’s stock price dropped nearly 8 percent in trading today, falling $1.75 to $20.15 a share. The company’s stock has plunged more than 50 percent over the past year.

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com
Page 1 / 8   >   >>
fanfare 12/4/2012 | 9:40:41 PM
re: SBC's Fed Up, But So Are Its Critics "RBOCs are losing money not because of unfair pricing, but because they havenG«÷t optimized their own cost structures and networks in order to make wholesale profitable. G«£The level of service they provide is minimal,G«• Jacobson says."

Agreed. Having worked for VZ, I know this to be true. RBOC's claim that relief from regulation will allow them to offer more services (thus implying a return to CAPEX). Don't believe it. They will be all too happy to return to their 'milking' business. They may, initially, polish up their old acts in order to make them appear like new approaches to doing business; however, we will still see the same old entities trying to protect the same old strangleholds.

Trust me,.. they whine because they can no longer rape as efficiently.
Ramu3 12/4/2012 | 9:40:36 PM
re: SBC's Fed Up, But So Are Its Critics re: Trust me,.. they whine because they can no longer rape as efficiently.
---
yes, true, and they also whine because they feel the entire technology world is now dependent on them, and have gotten many of those people to believe their story. It will blow up in their face.

On their claims of unfair pricing, the Supreme Court ruled the pricing is fair. That they continue to whine about it even after that is a very telling message in and of itself.

opticalwatcher 12/4/2012 | 9:40:34 PM
re: SBC's Fed Up, But So Are Its Critics The RBOCs always have a simple story line:

1. If anything bad happens it is because we are being restrained from being a total monopoly.
2. If you want good things to happen, change the law (or interpretation of the law) to let us be a monopoly again. Good things are defined as whatever good things you want to happen: massive DSL rollout, improved economy, more congressional payouts (oops, how did that get in there?), more jobs, whatever else you can think about.
whyiswhy 12/4/2012 | 9:40:33 PM
re: SBC's Fed Up, But So Are Its Critics These guys are absolutely incredible! They just want to pull the same squeeze game in wireless they pulled on CLECs. Namely, low ball their competitors out of business. Broadband is an afterthought, if it is thought about at all.

-Whyiswhy
Jimi 12/4/2012 | 9:40:32 PM
re: SBC's Fed Up, But So Are Its Critics SBC may not be the best run company in the land but it has survived for a reason. Call it regulation, call it "rape", call it whatever you want. It's worked for a long time.

SBC provides almost 200,000 jobs throughout the country. Is that rape? The fact that you can stay at a company for 20 years and still have a job should speak volumes. If you're unemployed I understand why you are bitter. SBC can't be the cheapest. Otherwise it would die like the rest of them (WCOM, XO etc). Yeah yeah, maybe a T1 to the internet should cost closer to 500 bucks instead of 1000. It's called covering your overhead and making some profit. It's not rocket science.

You guys whine with no solution. Save it.

SBC needs to become more of a monopoly to generate jobs and allow for the Cisco's and the Nortel's to thrive. Then hopefully you'll see smaller companies trying to get in. Thus creating more jobs in the telecom industry. We're talking years here, not months.

SBC needs long distance to grab market share away from the Focal's, Allegiance, ATT etc. Those guys are bumbling trying to give 1/10 of what SBC can already do. Not to mention it will make the LD market that much more competitive. Consumers should save a boatload.

SBC is no gem of a company but they provide a lot more to this state and country than any other employer. They own the copper and don't want to give it up. Would you, if it was yours to begin with.

Maybe the right thing to do would be to allow the competition to buy the copper and fiber rather than lease it from SBC. Or maybe the competition should just kick down and pay to have local loops installed everywhere. Yeah right. They'd go broke 100 times over.

I say let SBC stabilizes the industry. Feed it so it becomes big again. Then deregulate the RIGHT WAY.

Like it or not. SBC is the best thing going these days. FACE IT!
Ramu3 12/4/2012 | 9:40:32 PM
re: SBC's Fed Up, But So Are Its Critics truth hurts, eh jimi?

re: SBC ... has survived for a reason. Call it regulation, call it "rape", call it whatever you want. It's worked for a long time.

duh. It's called government-sanctioned monopoly with guaranteed profits and protected losses. Learn some history before you go popping off calling people idiots.

re: "The fact that you can stay at a company for 20 years and still have a job should speak volumes."

Maybe in your empty encyclopedia of knowledge it does. Your statement is laughable.

re: "You guys whine with no solution. Save it."

Seems to me the whining award goes to SBC. What part of "supreme Court Decision" don't you understand?

re: "SBC needs to become more of a monopoly to generate jobs and allow for the Cisco's and the Nortel's to thrive. "

Oh, Silicon valley CEO logic. Your apparent IQ shrinks with every ridiculous new statement you make.

re: "They own the copper and don't want to give it up. Would you, if it was yours to begin with."

No, genius, it was purchased with ratepayer money under a regulated monopoly. Why in the hell do you think they are required by law to share it?


re: "I say let SBC stabilizes the industry"

IQ-ALERT----WARNING--WARNING--JUST DROPPED BELOW ZERO.
generalcharlesdegaulle 12/4/2012 | 9:40:31 PM
re: SBC's Fed Up, But So Are Its Critics RBOC's were so smug laughing at failed CLEC models
and attempts to actually offer new innovative
services...now that the grim reaper is knocking
on their door, they cry foul!?...reminds me of
the last phrase from animal house.."the animals
looked at the humans and humans looked at the
animals...and they could not tell each other
apart!".....welcome to the death-lock..you
are going down to!?...muhahahahahaha!
Balzac 12/4/2012 | 9:40:29 PM
re: SBC's Fed Up, But So Are Its Critics Boy Howdy! 'pears that there is a lot of strong (read that "opinionated"??) emotion here which just totally flabergasts me and leaves me standing with open mouth and a quizacle (never could spell that danged word) stare.
So, being only a po'ole country boy, I'm trying to understand the uproar here - this monsterous, greedy, consumer raping corporation (SBC) is angry because they are being forced to provide thier infrastructure to their competitors at costs way lower than what they pay for them. SBC's competitors, in turn, lure SBC's customers away with lower costs because they don't have to recoup any investment. Basically, SBC is footing the bill, giving what they purchase away, and getting nothing in return. Have I got this right so far?
Next, this danged ol' greedy coporate monster suggests that this is unfair because their competitors don't have to open up thier market for competition - so, SBC is a whining monopoly... their competitors are not.
Now, this all sounds very appropriate to me. Why, my son-in-law would probably agree completely with y'all. He enjoys living in my house, rent free... does no work... expects his meals on time... uses my electricity, water and gas... and then voices his distaste when I have the audacity to ask for his assist with the basic chores, payments, etc...

So, here is my opinion on all this: SBC should be mandated (after all, as y'all are implying, SBC is a Government owned utility) to continue to build thier infrastructure at huge costs to themselves, give it away to those who are gracious and angelic and absolutely only interested in po'ol country boys like myself and don't have a mean, dishonest, or greedy bone in their lean bodies. Then, we should force SBC not to be allowed to obtain a return on their investments and when they don't, and can't meet payroll, get angry at them for layoffs.
Finally (and then I'll stop whining), we should encourage the RBOC to reject the evil, greedy, capitalistic tendencies that are currently encumbering them and embrace the philosophy: to each his own, according to his need.

God Bless America. Is this a great place to be or what?
rjmcmahon 12/4/2012 | 9:40:29 PM
re: SBC's Fed Up, But So Are Its Critics Balzac; Imagine if you paid your son-in-law to install new carpeting, and while he was at, he changed the locks on all the doors. Then he started behaving like he owned the house. He demanded rent payments from everybody living at his residence. He charged rent so high that everybody needed three jobs each just to pay for a roof over their heads. And your son-in-law convinced himself that collecting rent was hard work and he deserved all the money he collected.

The RBOCs behavior is no better than that.
rjmcmahon 12/4/2012 | 9:40:27 PM
re: SBC's Fed Up, But So Are Its Critics I would rather see a 100,000 person SBC, than the 200,000 person, company who burglarizes the wallets of its customers.
_______________

The TVA produces and distributes power with a headcount of 13,000. And contrary to another of Dietary's many false claims, they pay their own bills, including state and local taxes, from their own revenues.

http://www.tva.com/abouttva/ke...

The RBOCs standard of performance would need to be raised by orders of magnitude if they were to develop and grow their workers, not to mention meet their societal responsibility of caring for our information infrastructure -- an infrastructure required for many basic human rights, including free speech and knowledge diffusion.

Unfortunately, RBOC leadership have created institutions of decay, training their staffs to believe their underperformance is acceptable, and worse, that they can do no better. These are bad institutions under which wealth accumulates into the hands of a few while the people decay.

We can and must do better.
Page 1 / 8   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE