For SBC Chief, AT&T; Deal Is Essential in New Telecom Era

The shape of the telephone industry has changed practically overnight.

In the space of two weeks, long-distance carriers AT&T; Corp. and MCI Inc. agreed to be acquired by local phone giants that once were rivals.

In the eyes of Edward E. Whitacre Jr., chairman of SBC Communications Inc., buying AT&T; was essential for his company, the industry and the future health of the U.S. economy.

The $16-billion deal, if approved by regulators and shareholders, would create the nation’s first fully integrated telecommunications player, a company able to offer a slew of services to households and businesses worldwide. It also would propel the industry into an era dominated by a few behemoths offering local and long-distance service, broadband, mobile and video over high-speed fiber-optic lines.

But Whitacre sees a lot of competition -- from cable and cellular firms; from embryonic technologies such as wireless broadband and broadband over power lines; and, most notably, from one-time ally Verizon Communications Inc., which agreed this week to pay $6.8 billion for MCI.

Whitacre met with Times editors and reporters this week to share his view of the rapidly shifting telecom landscape.

Question: In announcing the merger, you welcomed your former parent, AT&T;, home, praising its operations and efficiencies. But for 10 years, SBC executives said they would like to bury AT&T.; As the leader in that war, how do you now make peace?

Answer: I’m not trying to make peace, I guess. I’m trying to make some business sense for our stockholders, first and foremost. The 1996 Telecommunications Act [designed to spur local phone competition] has been a dismal failure. People could go into business with nothing. We sell them our network at below our cost, and all of a sudden they were an instant phone company.

And it led to where nobody makes any money; everybody’s essentially broke. It’s a dismal industry. Wall Street wouldn’t put a dime in this. Somebody has to put this back together again because it’s a vital industry. We ought to have a big global world carrier too. So that’s what we’re trying to do.

Q: Why does SBC want AT&T;?

A: I needed this for three reasons. One is, I don’t have a national network. I lease one. Well, that’s not good over the long period of time. [Two,] technology’s changed. I don’t have a voice over Internet protocol platform [where phone calls carried by packets of data are transmitted over high-speed lines]. They got it. I need it. [Three,] I don’t have an enterprise business. I’ve been mightily struggling to get in it, made a few inroads, but it’s slow going. I need to be in that business. They need us: They don’t have a local presence, a network. So it’s a pretty good marriage of those things.

Q: Are consumers still going to see the AT&T; brand five or 10 years from now?

A: That is a huge question we have. I’m polling everybody: What should we call this company? Should we call it AT&T;? Should we call it SBC?

Q: Or do you preserve it as a brand within the company?

A: Right. That’s the question. In the little studies we’ve done, people under 30 don’t know what AT&T; is. I know you’ve got to brand it right, call it the right thing, and that’s a difficult thing.

Q: Internationally, no one knows SBC.

A: No. They don’t know us on the East Coast. We’re only in 13 states. So there’s 37 where we’re not known at all. In California, SBC is on a par with AT&T; in terms of what we do, but it’s taken us a lot of money.

Q: And many customers in California still call you Pacific Bell.

A: People still think we work for AT&T.; We get that all the time. This is 20 years later. But in the states where we don’t have a geographical presence, we’re not known at all. In New York City, they say, “What is SBC? Why are you in here trying to sell us phone service?”

If you chose the AT&T; name, you’d sort of solve the problem instantly because a lot of people know it. We have a few months to figure that out. Hopefully, it’ll be sooner rather than later. But that is one we’ve got uppermost in our mind.

Q: Do you plan to bundle your land-line and mobile services with AT&T;’s network to serve businesses and households in New York, Atlanta and Miami -- areas outside your 13-state territory?

A: I certainly do intend to do that. You bet. Even to other parts of the world. That’s one of the interesting parts about this technology. Voice over IP enables you to do that in a lot of places. AT&T;, for example, has customers in Hong Kong and in England, and they have New York area code telephone numbers. So with broadband and voice over IP, you could have a customer anywhere in the world. And certainly it’s going to make it more competitive from that angle.

Q: With Verizon already using VOIP to compete in your territory, does this end the unofficial truce between the regional network owners not to compete for each other’s residential customers?

A: It does. Yes, it probably does. It’s a pretty interesting time in this industry. We’ve got this new [VOIP] technology, which has so many advantages, and it works. And the quality’s good. It’s clearly going to sweep through the whole industry. It’s going to change the way we do things over time.

Q: You want fewer rules for regular telephone service. Do you want the same for VOIP?

A: Voice over IP is sort of the Internet in the broad sense, and I don’t think it ought to be regulated at all. I think a lot of people would agree that it’s one of the new services, new technologies. It’s impossible to regulate like in the old days because you don’t know where it goes, you don’t know how it terminates, you don’t know what route it takes.

The general feeling is you’d better make this a very light regulatory touch on these new technologies and new services, or we’re going to kill it. There won’t be any investment. Things won’t move forward. And I think we’ve seen that. So I think there’ll be some regulation, and they’re trying to sort that out in D.C., maybe rewrite the Telecom Act. Gosh, I hope so, because the one we’ve got doesn’t work.

Q: How would you rewrite the federal law?

A: I’ve been up there talking to them. My preference would be there’d be no regulation of service going forward “except under the following conditions.” And there’d probably be one condition or two. I know it won’t come out that way, but there’s got to be less regulation and there has to be a level playing field somehow.

Wireless is a substitute for wire-line phones; it’s not some goodie. The cable companies are in telephone and not regulated by anybody. And you got the old telephone companies that have this myriad of regulations that are out of date. Maybe quality of service is something you regulate, but not how you get there.

Q: On competition, cable has only 3 million telephone customers; telephone companies have 135 million lines in use. Cingular Wireless, which is largely owned by SBC, and Verizon Wireless control more than half the cellular market. VOIP companies have fewer customers than cable. Other new technologies aren’t widely available to households. Where’s the competition for the typical household?

A: For your household today, you probably could pick from 10 [land-line companies] and SBC; several wireless companies, probably five or six; a cable company. That’s a lot of choices. So you probably have 15 to 20 choices. Consumers have more choices than they’ve ever had before.