Regulators Question SBC’s Layoff Plans

State regulators Friday challenged SBC Communications Inc.’s plan to cut 3,000 jobs in California and called for an investigation into the layoffs to make sure they don’t hurt customer service at its SBC Pacific Bell unit, the state’s largest phone company.

Two commissioners on the state’s Public Utilities Commission said their ears pricked up when an SBC PacBell spokeswoman said the company’s work force reduction would degrade service for its more than 10 million customers. On Sept. 27, San Antonio-based SBC announced plans to cut 11,000 workers from its payroll, including about 6% of the jobs in California.

The regulators also said the layoffs are unjustified given SBC PacBell’s profits.

“We are quite concerned about that,” PUC Commissioner Carl Wood said. “We feel that the information available at this point shows that SBC Pacific Bell is financially strong, and as a result no layoffs are in fact warranted.”

Wood said he and PUC President Loretta Lynch would ask the commission to approve an investigation of the matter at its Oct. 24 meeting. The commission cannot prevent SBC from carrying out its planned layoffs, but it can levy millions of dollars in fines if it determines that those layoffs degrade customer service.

SBC PacBell spokesman John Britton questioned the need for any commission action. He called the commissioners’ characterization of the layoff’s effects “an extreme exaggeration.”

“We expect no impact on customer service at this time from the recently announced position reductions,” he said.

The commissioners’ action stems from a comment made by Lora Watts, SBC PacBell’s president of external affairs.

When the layoffs were announced last month, she complained to reporters that onerous regulations were hurting the company’s business. Then she added: “We will try to maintain our customer service levels, but we face some difficult decisions that could someday have an impact on our service.”

For the last several months, SBC has been a vocal critic of state regulations that set wholesale rates for its services. SBC says the rates, which vary by state, are too low.

The wholesale rates represent the prices rival carriers must pay to incumbent phone companies such as SBC PacBell to use copper lines and certain other pieces of their network and provide competitive offerings to consumers.

In California, those rates originally were set so high that few companies stepped forward to compete with SBC PacBell, which still controls more than 90% of home phone lines in its region. The PUC substantially lowered those rates in May, but a permanent pricing structure still is under review.

SBC PacBell had operating income in California totaling $3.5 billion in 2001, up from $2.9 billion the year before, according to audited financial statements produced for the commission by SBC PacBell. The PUC said the company has earned profits well above the level considered a “healthy return” by previous commissions.

“We have not seen any evidence in California that regulation is causing SBC PacBell financial hardship,” Commissioners Wood and Lynch wrote in a letter they sent Friday to SBC Chairman Edward E. Whitacre Jr.

The letter also reminded Whitacre that SBC PacBell remains a regulated utility and is required to provide high-quality service to its customers. “That obligation is not excused if SBC Pacific Bell does not meet a desired earnings target,” the commissioners said.

The commissioners warned that the agency would not hesitate “to seek appropriate remedies” from the company, including fines, if the mandated service levels are not maintained.

Wood and others said they are worried that SBC may be cutting back at the California phone company because of troubles in some of its other regions. SBC serves customers in 13 states from Michigan to Texas.

“SBC PacBell is clearly earning a healthy profit in California,” said Regina Costa, telecommunications director at the Utility Reform Network, a San Francisco-based consumer group. “This is the first time this state has really had to tackle the problem that you have with a multi-state telephone company, which can play states off each other.”