SBC Planning to Enter Rivals’ Phone Markets

Amid the hand-wringing and hoopla over its proposed mega-merger with Ameritech Corp., SBC Communications Inc. this week unveiled yet another surprise: a potentially groundbreaking strategy to offer local phone service in 30 major cities now served by rival Baby Bell companies.

If carried out, the ambitious plan would for the first time give millions of residential customers a choice for basic phone service in cities stretching from New York, Washington, Boston and Philadelphia in the East to Denver, Phoenix and Las Vegas in the West.

SBC will also target the lucrative business market in those cities, where many other companies have for years been capturing corporate customers served by the regional Bell phone companies.

“No other telecommunications company has committed to competing on this scale,” said Edward Whitacre Jr., chairman and chief executive of San Antonio-based SBC, which owns Pacific Bell in California.

But SBC’s pledge comes with a catch. The company says it will not embark on the out-of-territory expansion unless regulators approve its planned buyout of Chicago-based Ameritech.

“We don’t think we would have the size and scope to do it alone,” said Jim Ellis, a lead attorney at SBC, in an interview Friday. “They go hand in glove together.”

That proviso has left industry watchers wondering if SBC is serious or merely trying to please regulators weighing the Ameritech merger’s effect on competition.

“It’s a pro-competitive move that will strengthen their case on the merger,” said Jeffrey Kagan, president of Kagan Telecom Associates, an Atlanta consulting firm. “But they have to follow through and do it.”

Gene Kimmelman, co-director of Consumer Union’s Washington, D.C., office, wants federal authorities to block the merger and is skeptical of SBC’s plans.

“Claiming to be planning to go into these markets is easy and cheap and is a diversion. . . . So they’ll look elsewhere instead of at the level of concentration in their markets,” Kimmelman said. “Consolidation is here and real, while the competition is always illusory and in the future.”

The all-stock Ameritech deal, priced at $56 billion at the close of business Monday, the day it was announced, is now worth about $54.1 billion. The merger, which could take as long as 18 months to complete, remains the largest yet in the fast-consolidating telecommunications industry, and it brings together three of the original seven Baby Bells created by the 1984 breakup of AT&T;: Ameritech, SBC and PacBell.

Last year, SBC bought San Francisco-based Pacific Telesis, PacBell’s parent, and Bell Atlantic bought Nynex.

Until the landmark Telecommunications Act passed in 1996, the monopoly local phone companies were prevented from crossing territorial lines to take on other local providers.

Since then, US West’s MediaOne cable unit has begun selling phone service in some rival Bell regions, and others have nabbed business customers across territorial lines, but there have been few major incursions among the local phone companies.

SBC says it will use a combination of its own equipment, leased network components and even wireless switches to enter the new markets. Under a “national-local” strategy, SBC will sell business service initially, then link its residential markets into a national business and eventually connect the U.S. with its vast overseas operations.

The company said the 30-city expansion would cover a population base of about 70 million. SBC said it expects to bring in $2 billion a year in revenue from the new markets by the fourth year of operations.

“We have a reputation that we do what we say,” Ellis said. “This will allow us to follow our customers wherever they go, to follow the traffic, follow the money.”