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SBC Plans a Huge Outlay

With FCC competition rules gone, it may spend $6 billion over five years to upgrade services.

June 23, 2004|James S. Granelli | Times Staff Writer

CHICAGO — SBC Communications Inc. plans to invest up to $6 billion in new technologies to compete with the cable companies and Internet services threatening its traditional local calling business.

Chairman Edward E. Whitacre Jr. said Tuesday that the five-year project would enable the company to deliver digital television, super-fast Internet access and cheap phone service over fiber optic lines to customers in its 13-state region, which includes California.

The SBC plan to upgrade its network was unveiled one week after the demise of federal phone competition rules that had required SBC and several other local phone companies to lease lines and gear to competitors at regulated wholesale rates.

Whitacre and other telephone company executives had long complained that the rates were below their costs and so discouraged investment in new equipment and services. Without the rules, Whitacre said he "could feel some optimism" returning to the industry.

"Telecommunications is poised to enter another period of explosive growth, innovation and productivity," he told a standing-room-only crowd at the SuperComm trade show here.

Whitacre predicted that the Federal Communications Commission would adopt "more rational" competition rules by the end of the year.

FCC Chairman Michael K. Powell said in a speech at the same show that he expected interim rules to be in place within two weeks. The old rules were tossed out by a federal appeals court, and the Bush administration refused to seek Supreme Court review.

SBC was "sending a strong message" to the FCC, said independent telecom analyst Jeff Kagan in Atlanta: "They have billions of pent-up investment dollars that they are planning to release into the marketplace, assuming they consider the regulatory rules and environment to be fair."

San Antonio-based SBC and other so-called Baby Bell phone companies -- created by the breakup of onetime telephone giant AT&T Corp. -- have watched their historical monopolies on local phone service come under attack -- not just from rivals leasing their networks but also from cable firms and Internet-based services.

To fight back, the Baby Bells believe they must offer a range of new services in addition to plain old phone service. Doing that requires first replacing the copper wires in thousands of neighborhoods with fiber optic cable, bundles of hair-thin glass that carry huge amounts of information on pulses of light.

Whitacre said in an interview that SBC was moving slowly for the moment. The aggressive installation, on which it will spend about $1 billion a year, wouldn't start until next year -- after, he hopes, the FCC adopts new competition rules.

In the meantime, the company will begin testing a television service using Microsoft Corp.'s IP-TV platform, which uses Internet protocol to send television signals through cable or telephone networks.

"IP-TV gives customers a richer, more self-controlled and more interactive television experience in ways that today's providers cannot," Whitacre said.

Verizon Communications Inc. already is taking fiber to new and existing homes. California's second-largest phone firm said it was spending $1 billion this year to hook up 1 million homes, and more money next year to hook up an additional 2 million homes.

Verizon said Tuesday that it also was upgrading the gear that connects calls and provides features such as call waiting to make it easier to roll out new services. California cities getting the makeover are Azusa, Baldwin Park, Homeland, Lake Elsinore and Temecula.

Competitors fear that new investments by the Bells, combined with the lack of favorable regulations, will drive them out of business and force up prices.

Z-Tel Communications Inc., a Tampa, Fla.-based firm with nearly 625,000 customers nationwide, said Tuesday that it would stop taking new residential customers in eight mainly rural states, from Maine to New Mexico, where wholesale prices are high and profit margins too thin. It will continue to serve existing residential customers and to seek new small-business customers in those states.

"While it may seem premature to make business decisions based upon the uncertainty of future regulatory action, it would also be imprudent for Z-Tel not to recognize that the [Bells] are planning on implementing significant changes in their pricing ... soon after the November elections," Donald Davis, a Z-Tel vice president, said in letters to regulators in the eight states.

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