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Competitors laughed and investors scoffed last week, when SBC Communications Chairman Edward Whitacre blamed his companys third-quarter losses on government regulations that blocked SBC from deploying DSL.
But at least one analyst said Whitacre was “dead on” when he commented that federal and state regulations were responsible for the economic abyss.
SBC – which holds a near-monopoly on telephone and DSL service in the Midwest, Southwest and Pacific Coast regions – reported net income of $2.1 billion, down almost $1 billion from the previous quarter. In addition, Whitacre said SBC will lay off several thousand people and cut capital expenditures by 20 percent, or $2.4 billion, next year.
The announcement of delayed DSL availability was widely seen as a blow to the expansion of consumer-based e-commerce, further delaying the plans of online retailers and entertainment companies to deploy Web technologies that require broadband access in homes.
The beef of the regional Bells is that they have to share their lines with competitors, while cable companies do not. “When you have to give service away on DSL, it doesnt make sense,” Whitacre said. “I dont think its right.” He blasted federal and state regulations for driving up costs and hampering his companys growth.
DSL is available to 60 percent of SBCs 60 million customers, but so far just 1.2 million people have signed up for the $49.95-per-month service. SBCs Project Pronto, a three-year, $6 billion initiative, was supposed to make DSL available to 80 percent of the companys customers.
Whitacres complaints obscure the fact that SBC fared worse than other regional Bells – faced with the same regulations – in several key growth areas. Its penetration rate is below that of Verizon Communications and BellSouth; their data revenue grew 28 percent last quarter, while SBCs grew just 10 percent.
“I was surprised and appalled” at Whitacres complaints about regulations, said Dave Burstein, editor of DSL Prime. Any claim that the regulatory environment for broadband deployment has gotten tougher “is nonsense,” Burstein said. The rules havent changed significantly since 1998, when SBC was gung-ho about broadband. Cutting back on Project Pronto is “a foolish move to prop up short-term profits that hurts both SBC and their customers,” he said.
Analysts point to seeming inconsistencies in Whitacres statements. For example, SBC said Project Pronto had installed only 4,000 of the promised 17,000 new digital loop carriers – and only 300 since the first quarter. That suggests it pulled back on Project Pronto five months ago.
Also, last quarter, SBC said that most of the capital expenditure for Project Pronto was behind it, but last week Whitacre said the company was cutting back on Project Pronto to reduce capital spending.
“Its clearly a ridiculous complaint,” said Mike Jackman, executive director of the California Internet Service Provider Association, noting that SBC has at least a 90 percent share of DSL in its territory.
But Scott Cleland, CEO of The Precursor Group, an independent research firm, offered a different perspective. The Federal Communications Commission has given competitive carriers several billion dollars in subsidies in the form of below-cost line sharing, he said. “When you force competition by slashing resale prices, revenues are going to implode,” he said.