Wedding Bells : THE AQUIRER : SBC’s Muscle Makes Up for Its Lack of Innovation

The proposed merger of SBC Communications Inc. with Pacific Telesis Group would bring to the California market a telecommunications company that has succeeded more by aggressive competitive tactics than by investing in flashy technology or entering uncharted waters, analysts and corporate observers say.

SBC, in fact, has lagged well behind many of the six other Baby Bell regional phone companies in diversifying into such businesses as multimedia, consumer programming and interactive computer services.

Its best-known such venture--a joint venture with Walt Disney Co., Ameritech and BellSouth to produce video programming--has scarcely gotten off the ground.

On the other hand, few Bell companies are as practiced as SBC in protecting its own well-plowed turf from competitors. Analysts say that’s given the company a near-monopoly status in its home markets--thus helping it avert the need for large-scale layoffs and other painful cost-cutting measures taken by other large corporations.

Rivals say SBC was behind the passage last year of a Texas law aimed at blocking big long-distance companies from moving into the state’s local telephone market.

The Southwestern Bell unit of SBC Communications had mobilized more than 100 lobbyists, hundreds of thousands of dollars in political contributions and millions more on public relations to pressure lawmakers into enacting “the most anticompetitive, anticonsumer telecommunications law in the nation,” complained long-distance phone provider MCI Communications.

The law effectively opens SBC’s local phone service market to a raft of small entrepreneurial competitors, but bars the long-distance powerhouses of MCI, AT&T; and Sprint.

Many companies in the telecommunications field say SBC’s role in lobbying for the Texas law is emblematic of how it operates--fighting savagely to protect its lucrative near-monopolies at home while moving aggressively into others’ turfs across the country and as far afield as Mexico, France and Great Britain.

“They’re the Iraq of the Baby Bells, in terms of their belligerence in trying to protect their home turf,” says Royce Holland, president of MFS Communications, which has fought a long battle with Texas regulators to win access to the local phone service market.

SBC’s proposed merger with PacTel, which would be the first-ever merger between two Baby Bells, is certain to turn the spotlight on the company and its 54-year-old chairman and chief executive, Edward E. Whitacre Jr.

Mining an unglamorous five-state home territory centered in and around Texas, SBC under Whitacre’s leadership has become Wall Street’s favorite among the Bell companies, as is attested to by its price-earnings multiple--consistently the highest in the group.

SBC has accomplished this by concentrating largely on cellular phone service and investments in overseas cable and telephone companies--including a 10% holding in Telefonos de Mexico.

Whitacre bought the interest in Telmex--which has doubled in value despite the Mexican peso’s 1995 plunge--with scarcely a question from his board of directors. That’s a sign of the respect he has won from shareholders and board members alike, says Ruben Cardenas, a Texas attorney and SBC director.

The board made him the nation’s best-paid Baby Bell executive last year, with $2.33 million in salary and other compensation. Whitacre has spent his entire career at Southwestern Bell since graduating from Texas Tech University in 1964.

“He’s a soft-spoken person but a great leader who speaks with authority,” Cardenas said. “And he’s created great credibility with his board.”

He has also done so without taking the draconian cost-cutting measures employed by other CEOs as a means to earning respect. Although Whitacre is known to wield a sharp pencil--he cut the company air fleet in half soon after taking over in 1990--he has thus far avoided the wrenching large-scale layoffs that have afflicted other big companies.

“We don’t intend to” cut jobs as part of the PacTel takeover, he said in interviews Monday.

Yet industry observers say SBC has not had to resort to severe cost-cutting in the past largely because it has had things so cushy at home.

“This is a very well-run company,” says Scott Wright, telecommunications analyst at Argus Research. “But it’s had a fairly protective regulatory climate.”

The lack of competition in local service has allowed SBC to lag behind the six other Baby Bells over the years in keeping its local network technologically upgraded through such measures as installing digital switching.