SBC Growth Plans May Make Baby Bell Big Fast
They’ve been known as regional Bell telephone companies since the breakup of Ma Bell in 1984, but Pacific Telesis Group and SBC Communications Inc. may outgrow that moniker soon with their ambitious plans to capitalize on the burgeoning Asian and Latin American telephone markets.
SBC already has extensive overseas telecommunications investments spanning from Mexico to South Korea. And the carrier’s proposed $16.7-billion acquisition of PacTel, announced last week, could make the San Antonio-based company a formidable competitor in international long-distance calling--if, as expected, it soon gains approval from federal regulators to offer such services.
Acquiring PacTel would give SBC two big prizes in its quest to compete on the international stage: a near doubling of its operating cash flow to $9 billion, and a leading position in two long-distance markets--California and Texas--that account for more than half of the telephone traffic to Mexico and more than a third of all telephone calls placed overseas, according to Gregory E. Staples, editor of Telegeography, a Washington-based publication that tracks international telephone usage.
“I think maybe they should be called not the RBOC [regional Bell operating companies] but the IBOCS, international Bell operating companies,” said Eli M. Noam, director of Columbia University’s Institute for Telecommunications.
But it won’t be easy trying to capitalize on its potentially lucrative franchise.
PacTel brings little global diversity to SBC because PacTel’s international holdings were jettisoned in the 1994 spinoff of its wireless operations into AirTouch Communications. Large businesses, which account for a big chunk of international calls, will be leery of moving their accounts to a carrier relying on leased facilities--which SBC will have to do for at least a while when it gets into long distance.
What’s more, the immigrants who account for much of the heavy international phone usage in Texas and California tend to be price-sensitive and far too diverse to be easy targets for phone company marketing efforts.
“People think of the Latino community as monolithic, but it consists of the Mexican community, the Salvadoran community . . , and the linguistic and cultural differences can be stark,” said Debra McMahon, a vice president at the Washington office of Mercer Management Consulting who specializes in telecommunications analysis.
Still, McMahon noted, “the power of specifically ethnically targeted programs is unbelievable if [a program] can capitalize on the very real and very strong social and economic ties that exist in these communities.”
In fact, in cities from Atlanta to New York, price-sensitive immigrants have helped fuel the rise of a whole host of alternative long-distance providers and services, including prepaid calling cards, long-distance callback services that enable overseas callers to profit from lower U.S. charges, and phone parlors--storefront businesses that let customers call overseas from private booths.
Microtel Communications, a New York City firm, for instance, has done such a booming business operating 150 phone parlors in the Big Apple that the company has branched out into offering local phone service, mostly to recent Latino immigrants, for a fee of $23 a month. The company says it has signed up more than 1,000 customers.
Still, major carriers like AT&T; Corp., MCI Communications Corp. and Sprint Corp. have been fighting to lure immigrants, using everything from sponsorship of ethnic festivals to offering assistance in a variety of foreign languages.
Carlos Ramirez, AT&T;’s director of public relations for the Latino market, said a company study found that Latinos spend nearly twice as much on long-distance service as Anglos, generating monthly long-distance charges averaging $34.
With its foothold in states with the largest Latino populations, SBC is hoping much of that spending will go to its bottom line.
In the meantime, the PacTel cash-flow infusion will go a long way toward helping SBC further its aggressive international strategy, which it began in 1990 when it became part of an international partnership that has a controlling interest in fast-growing Telmex, Mexico’s leading phone carrier. The partnership, led by Grupo Carso, also includes France Telecom.
The Telmex investment has proved to be one of the better telecommunications gambles, as the number of Telmex’s wired access lines has risen nearly 50% in six years and the number of cellular telephone customers has quintupled.
SBC has also scored in Britain, where it owns part of a successful British cable TV franchise. In France, meanwhile, the company has become part of a complex European alliance whose holdings include French wireless and cable TV properties.
SBC also has great hopes for two other major foreign investments: a $316.6-million stake in a privately owned Chilean telecommunications company called VTR Inversions, and a South Korean wireless venture that is expected to begin construction next year.
But in the fast-moving world of telecommunications, the company must stay agile to keep ahead of competitors. Although the Telmex investment, for example, has paid off handsomely, Mexican officials are laying the foundation for more competition next year when AT&T;, MCI and GTE Corp. are expected to enter the Mexican market.
