THE STRATEGY : SBC Likely to Reorder Priorities, Analysts Say
When it comes to plotting strategy for the large, highly sophisticated and fast-growing California telecommunications market, SBC Communications Inc.’s proposed acquisition of Pacific Telesis Group is likely to bring some substantial changes.
Whereas PacTel has traditionally spent liberally on new technology and advanced services, SBC is renown for a cautious, tight-fisted approach. PacTel spun off its cellular subsidiary into AirTouch Communications Inc., whereas SBC has made cellular the centerpiece of its expansion strategy.
Analysts said SBC is likely to quickly reorder priorities in California. As SBC Chairman and Chief Executive Edward Whitacre Jr. sought to offer reassurances to PacTel customers Monday, analysts said the deal is likely to cut some of its new partner’s more expensive and speculative projects.
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Pacific Bell’s Advanced Communications Network--a project to upgrade the phone company’s copper wires with fiber-optic and coaxial cables so that customers can receive video and other advanced services--has already been scaled back, with the company pulling out of Southern California in favor of investment in the San Francisco Bay Area. Now the remainder of the project may be in jeopardy.
PacTel’s risky plan to get into the TV business via a new wireless cable technology may also be on the chopping block. The same goes for the company’s $100-million Education First program, which provides high-speed phone lines to California schools and libraries as part of the phone company’s charitable program.
“If there’s such a thing as a progressive phone company, then it’s PacTel,” said David Goodtree, telecom director of Forrester Research in Cambridge, Mass. “Pacific Bell is the technology leader while Southwestern Bell is almost always last when it comes to new services. Their emphasis has always been on short-term profit.”
On the flip side, SBC is likely to bring to California a focus on wireless communications that borders on obsessive. PacTel had already procured key licenses to provide a new breed of wireless personal communications services in both San Francisco and Los Angeles, and the opportunity to reach California’s large, mobile work forces appears to have been a key driver behind SBC’s unusually bold move.
“SBC does not arbitrarily go into markets,” said Brian Adamik, a vice president with Yankee Group, a Boston consulting firm. “When SBC got into wireless, they did so because it was very similar to what they had been doing all along. It was a business they understood.
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“But when it comes to something like interactive, they think, ‘What the hell do I know about building a video services?’ ”
Even in wireless, SBC has been careful. Whereas PacTel spent about $700 million in a federal auction for its PCS licenses, SBC stayed out of that expensive bidding war.
Still, analysts said some advanced Pacific Bell services should fare just fine under SBC. Pac Bell is a leading provider of integrated services digital network, or ISDN, which provides data transmission speeds many times faster than conventional analog modems--and SBC could conceivably be even more aggressive in the marketing of that service. Pac Bell’s efforts to offer Internet access are also ahead of SBC’s.
California’s consumers are among the most technologically savvy in the nation and are likely to favor a telecom supplier that offers them a wide range of services. Analysts caution that should SBC lag in meeting their needs, it may open the door to national rivals such as AT&T; Corp. and MCI Communications Corp.
