At SBC, It's All About "Scale and Scope"

[David Farber <dave () farber net>]

Begin forwarded message:

From: Dewayne Hendricks <dewayne () warpspeed com>
Date: October 30, 2005 11:02:10 AM EST
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] At SBC, It's All About "Scale and Scope"
Reply-To: dewayne () warpspeed com


[Note:  Worth reading!  DLH]

At SBC, It's All About "Scale and Scope"
CEO Edward Whitacre talks about the AT&T Wireless acquisition and how  
he's moving to keep abreast of cable competitors
<http://www.businessweek.com/@@n34h*IUQu7KtOwgA/magazine/content/ 
05_45/b3958092.htm>

SBC Telecommunications' financial performance of late hasn't been  
much to write home about. For the third quarter, it just reported  
flat earnings of $1.2 billion on revenue of $10.3 billion, up a scant  
0.3% over the same period last year. But given the onslaught of  
competitors eating away like pigeons at SBC's (SBC ) bread-and-butter  
landline business, scant growth is better than the alternative. "Is  
[our] revenue growth great? No -- it's terrible," says CEO Edward  
Whitacre, who adds, "but it's a lot better than losing."

The truth is, Whitacre hates losing. He has always been primarily  
concerned with spurring the company to further growth, creating  
"scale and scope," as he likes to say, and generating market value.  
First, he bought Pacific Telesis and Ameritech in the late 1990s, and  
then AT&T Wireless last year (see BW Online, 8/31/05, "So Long AT&T?  
Not So Fast").

Now, with his acquisition of AT&T nearing approval -- it requires not  
only federal approval, which is expected any day now, but the sign- 
off from state regulators, expected in November -- Whitacre has  
created the largest communications company in the nation (see BW,  
10/31/05, "Storm Warnings for Kevin Martin").

COMPETITIVE VERIFICATION.  Such moves have prompted even his biggest  
rivals, including Verizon (VZ ) and Comcast (CMCSA ), to strike  
similar deals just to keep pace.

"It's kind of verification that maybe we're doing the right thing,"  
Whitacre says of his competitors. Dapper in his coat and tie, and  
cheerful despite the swirl of market forces facing his company, the  
SBC CEO sat down with BusinessWeek Chicago Bureau Chief Roger O.  
Crockett in Chicago to talk about how his company stacks up against  
the competition. Edited excerpts of theirr conversation follow:

Given that we've entered a new era in telecom where the Internet  
rules, how would you describe your strategy now?
It's still about scale and scope. It's about owning the assets that  
connect customers. The assets that probably can't be duplicated  
except maybe by the cable companies. We have that, Verizon has that,  
BellSouth (BLS ) has some of that. The cable companies have it. It's  
the numbers of customers you can get to. So it's scale and scope.

How much do you expect to compete against Verizon?
Well, a lot in wireless. They're going to have essentially the same  
capabilities that Cingular [SBC's wireless joint venture with  
BellSouth] has in a lot of locations. So I would think Verizon is  
going to be a big competitor. I think the cable companies will be the  
biggest competitor across the footprint.

In what other areas will you compete with Verizon?
In voice. We're clearly going to be fierce competitors in the big  
enterprise space. I suspect we'll compete in the small- and medium- 
business space, and for the consumer too.

For the consumer? How?
As Voice over IP gets bigger, they will have the capability to come  
into our so-called geographical footprint, and we'll have the same  
capability to go into theirs. I suspect over time there will be a lot  
of that.

Do you have a timeline for when that competition will heat up?
Over the next four or five years, I would think it will pick up a lot.

Some analysts believe that the new SBC won't be able to fully utilize  
AT&T to win business in the south as long as SBC is in its joint  
venture with BellSouth. Do you agree?
No. BellSouth and SBC have a fiduciary duty to make that business do  
as well as we can. In order for Cingular to do good, it's going to  
want to utilize everything that it can. One of the things it's going  
to utilize is this relationship with AT&T.

Won't BellSouth be concerned about losing some of its business  
customers to you, its wireless-venture partner, once your merger with  
AT&T is approved?
Well, they might be. BellSouth already competes against us in the  
enterprise space. And sure, we'll go and compete for some of their  
enterprise customers, and we'll sure use Cingular Wireless in doing  
it. But they can do the same thing. I just don't think it's the deal  
everybody is making it out to be.

Is it a possibility that SBC would acquire BellSouth?
It sure would be nice, but it doesn't have much chance of happening  
because of market power, size, etc. I think it would be real hard to  
do. I don't think the regulators would let that happen, in my judgment.

Have you made an overture?
I wouldn't say we haven't done that in the past, but I'm not going to  
do it now. I've certainly thought about it a few times, and I'm sure  
Bell South has thought about it too.

How concerned are you about Internet upstarts like Google (GOOG ),  
MSN, Vonage, and others?
How do you think they're going to get to customers? Through a  
broadband pipe. Cable companies have them. We have them. Now what  
they would like to do is use my pipes free, but I ain't going to let  
them do that because we have spent this capital and we have to have a  
return on it. So there's going to have to be some mechanism for these  
people who use these pipes to pay for the portion they're using. Why  
should they be allowed to use my pipes?

The Internet can't be free in that sense, because we and the cable  
companies have made an investment and for a Google or Yahoo! (YHOO )  
or Vonage or anybody to expect to use these pipes [for] free is nuts!

What's your approach to regulation? Explain, for example, the  
difference between you and Verizon in how you are approaching  
regulatory approval for Telco TV [digital-TV service offered by  
telecoms].
The cable companies have an agreement with the cities: They pay a  
percentage of their revenue for a franchise right to broadcast TV. We  
have a franchise in every city we operate in based on providing  
telephone service.

Now, all of a sudden, without any additional payment, the cable  
companies are putting telephone communication down their pipes and  
we're putting TV signals. If you want us to get a franchise agreement  
for TV, then let's make the cable companies get a franchise for  
telephony.

[snip]

Edited by Patricia O'Connell

Weblog at: <http://weblog.warpspeed.com>



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