Whitacre Tells ALTS Unregulated Broadband Players, UNE Discount Mandates Are Common Enemies

Entering something of a lion’s den, SBC Communications Inc. ( chairman and CEO Ed Whitacre addressed the annual Association for Local Telecommunications Services (ALTS) in Orlando, Fla., Monday, and sought to rally the audience of competitors around a few common enemies: unregulated cable, wireless and satellite broadband service providers and “economically irrational” ILEC access rules that, in the long run, make investment in network growth and improvements unfeasible.

To several hundred relatively welcoming ALTS attendees, Whitacre sought to dispel the perception that regional Bell operators like SBC successfully have defeated all comers and escaped the economic downturn.

“I shake my head when I hear people say, `What are you worried about? You’ve won.’ The losses in market value have hit us too [and] we’ve lost 3.5 million retail access lines,” Whitacre said. “The poor economy has been an equal opportunity destroyer.”

While some companies have brought disaster upon themselves, rules like UNE-P that force SBC to sell its infrastructure under cost at average 60 percent discounts “devalue investments of everyone, and is as much your fight as ours,” he added, citing discounts that translate to $1.6 million lost per line captured by competitors in Ohio. “That’s money lost to upgrade Ohio infrastructure.”

Noting that AT&T Corp. ( and WorldCom Inc. ( comprise “by far” SBC’s largest UNE-P customers, he called business models based on UNE-P “not healthy or sustainable. They invest in marketing, not networks, and at some point we’re not going to be able to support their networks and our own obligations.”

However, Whitacre insisted that the impact of investment disincentives and a “landscape littered with hundreds of bodies on the voice side” will be dwarfed by “a bigger train wreck coming in broadband. The deck is stacked against us, because DSL is comprehensively regulated. Regulations add hundreds of millions of dollars to cost and cause delays, and uncertainty in rules will keep us from deploying faster. Common sense tells me that fairness requires parity across all, including the cable companies,” that are growing a broadband customer base three to four times faster than SBC.

“The goal needs to be facilities-based competition and allowing your companies and our companies to deal business to business and get regulatory mandates out of the way,” Whitacre said. “That will rationalize some of those rules, particularly in allowing incumbents to recover their cost of capital. I want to sell broadband to you. I just want to make a little money, and you want to make a little money. The problem is that, as the cable and other unregulated players move ahead unencumbered, by the time these rules become certain and rational, there’s nothing left for you or me.”

Sending more than one message to federal regulators, Whitacre noted that telecommunications constitutes 15 percent to 20 percent of the national economy. “This is all about whether a company will invest in building a broadband network when it has no measure of certainty that it has an opportunity to recover its investment,” he concluded. “We can create rules with good intentions that distort the market, but in the end, economics always win. Always.”

Finally, asked about opportunities for SBC to acquire some assets of WorldCom Inc., which filed Sunday for Chapter 11bankruptcy protection, Whitacre dismissed the likelihood, but he put a common enemy spin on that too. “The lesson here may be that you’re rewarded if you cook the books, emerge from bankruptcy with erased debt and a much lower cost structure, then undercut rational market prices,” he said. “I don’t think anyone wants to see us living in a country where corruption is rewarded.”

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