THE PACIFIC TELESIS TAKEOVER : A State With Superior Phones, But a Long Call to Headquarters
In the aftermath of the big deal’s announcement, questions come naturally about whether California is better or worse off that Pacific Telesis Group is slated to become a subsidiary of Texas-based SBC Communications Inc.
That’s really two questions, one technological, one corporate. First, will California business and residential telephone users be well served by the new company, with advanced and reasonably priced services?
Yes, business and consumers will undoubtedly be well served. Understanding why will tell you as much about the state of technology as the state of California.
Second, will the loss of a big company headquarters hurt California with its huge population and diversity of industry--as such losses hurt smaller states and cities?
Perhaps surprisingly, the answer also is yes. The state will be hurt. The pain will be offset somewhat in that we have the headquarters of AirTouch Communications, the cellular phone company spun off from PacTel two years ago. AirTouch, now at $2 billion in sales, “will become a big company,” a telecommunications expert said Tuesday. But more later on that.
The fear surrounding SBC’s $16.7-billion investment in PacTel is that it will seek to earn a quick return by pushing the California company to raise prices. Or that it could force PacTel to cut back its development of advanced services such as the Integrated Service Digital Network, or ISDN, lines, which enable computers to communicate.
But SBC will have a hard time raising prices. The California Public Utilities Commission won’t let them, says Jonathan Aronson, a USC professor of telecommunications. “The PUC traditionally backs small business,” Aronson says, “and will be all the more attentive to it now.”
The California regulatory body at times has been pro-consumer and small business almost to a fault, making it hard for PacTel to adjust rates. That’s one reason Wall Street traditionally accorded PacTel a lower price on its stock compared with the shares of other telephone utilities.
But strict regulation has its rewards. California has an extremely vital small business environment, with thousands of companies setting up every year. Reasonably priced technology has a hand in creating that atmosphere.
ISDN lines cost consumers $39 a month here, compared with prices 10 times that level in SBC’s current home state of Texas, where utility regulators are a softer touch.
The upshot: PacTel has installed half the expanded capacity ISDN lines in the whole United States because local customers demanded them. The market created the company’s technological expertise, not the other way round. This is the market SBC, holding company for Southwestern Bell, comes into.
And in fact its financial muscle is needed. PacTel, ailing financially, was about to raise prices for some of its advanced services. SBC’s backing will allow the California company to hold prices down, experts said Tuesday.
The Texas company also is no slouch in understanding technology, experts pointed out. “SBC is a well-managed company,” said Paul Saffo an authority on telecommunications technology at Institute for the Future in Menlo Park, Calif. The company has an experiment in interactive computing services in Richardson, Texas, near Dallas, that compares favorably with AT&T; Corp.’s more publicized interactive experiment in California’s Castro Valley, Saffo said.
SBC was seen by all the experts as a much more suitable partner for PacTel than GTE would have been. Reports Tuesday that PacTel last year approached GTE, which charges higher prices and has less technical brilliance, about a possible merger or joint venture horrified these experts. “I would have left the state had they merged,” said one.
SBC is bringing more than money to the merger. Its video venture Americast will be combined with PacTel’s Tele-TV, giving the combined companies a vehicle for competing with cable, suggested Jeff Cole, director of UCLA’s Center for Telecommunications Policy.
The two companies will earn an instant return from combining their international business. Both SBC and PacTel, because of the large Latino and Asian populations of the Southwest and California, earn sizable access fees on calls to and from Mexico and Asia. They will earn even more when they handle long-distance calls to those areas themselves.
Otherwise, Cole says, the advent of intense competition for the phone companies--from cable operators, direct broadcast satellite companies and others, all eager to get into the telephone business--allays any fears that the merger will reduce service for Californians.
The march of technology is transforming the phone business. Until very recently, the cost of sophisticated switching and transmission systems made telephones a regulated monopoly--companies were freed from competition and allowed to earn a rate of return for providing a vital service.
Now technological developments are beginning to allow others to offer telephone service. Ultimately, computer switching systems will allow customers not only to send voice messages but full motion videos to each other.
And the leading companies developing those computer switching systems--Cisco Systems, Bay Networks, 3Com, Xylan--are almost all in California. The state that encourages small business can face the future confidently.
But the loss of a headquarters of a $9-billion-sales company like PacTel is another matter. It’s a well-documented fact that the presence of a corporate headquarters enhances community involvement and philanthropy.
PacTel’s record is outstanding. Last year, its corporate contributions statewide totaled $7.3 million. That was in addition to the start of a $100-million initiative called Education First in which the company is bringing high-speed telecommunications technology to 9,000 classrooms in California.
It’s to be hoped that SBC continues such public spirited initiatives--and it had better if it doesn’t want trouble from consumer and small business advocates before California’s Public Utilities Commission.
