DSL

DSL Prime News: SBC Examined

DSL Prime examines SBC (again) after a week of headline-making news that included deals with Yahoo! and Covad, and the hiring of a former Secretary of Commerce.

by Dave Burstein DSL Prime [November 21, 2001]

"It's stupid for a public company to be hated"
—remark attributed to an SBC board member.

William Daley, SBC's new President and CEO-in-waiting, is:

• an amazing choice with no background in telecom
• an outsider in what the CEO calls a tight group
• a northerner in Texas
• a government man in a company that despises government regulation
• presumably dedicated to serving customers, not squeezing them (unproven)
• able to at least give the impression of telling the truth, like a good politician
• likely to be eaten alive except for his politician's skills—the top of SBC is not welcoming to strangers

Whitacre's job protection for several years, because Daley does not have telco experience and hence "won't be ready"

The surprising appointment was presumably dictated by SBC's board, already challenging CEO Whitacre in public, and concerned about the dismal corporate reputation and poor performance. Daley was given total control over specific areas (strategic planning, regulatory matters, governmental initiatives, external affairs and international affairs), where presumably the board could see the failure of Whitacre's team. Two board members spoke out on Daley's importance; a third, Carlos Slim of Telmex, was specifically removed from Whitacre's area of responsibility.

A $13B market loss on the quarterly announcement hurt, but the underlying figures—disappointing profits and growth, far beneath projections—were an even crueler blow to Whitacre.

Only a fool could accept Honest Ed's claim that the problems were being caused by regulators—not when Mike Powell is busily being a hands-off FCC commissioner, and every voice on Wall Street and Washington is observing less demanding regulation.

When Daley is ready, presumably "John Wayne" Whitacre will ride off into the sunset with a rich reward.

SBC: Extended reach equals more customers
RFP out for reliable 18,000 foot technologies
As many as 25 percent of telco customers are between 12,000 and 20,000 feet from the local exchange/CO, and hence a potential problem to serve with DSL. No telco can afford to ignore that many customers in 2001, after the initial surge in demand has been met.

SBC's looking for solutions, and receiving responses from repeater vendors, Paradyne's low frequency reach technology, and testing solutions. (Celerity, for example, just reported testing can identify a third more servable customers up to 19,000 feet.)

Remote terminals, like Project Pronto, are probably the best way to serve the customers, as folks always write to remind us when we talk of alternatives. But with today's capex constraints, many will be looking for interim solutions—if the price is low enough. We're glad to see SBC take the lead, and welcome pointers to other positive stories about the largest U.S. provider.

Sue SBC, collect $100M
SBC/Covad deal keeps McMinn and shareholders in control
SBC took a good deal, some of which is just a loan. Covad offered it, because this is enough money to give them a chance to maintain control.

The $150M Covad/SBC deal is not new, but rather a re-working of the $600M deal with which SBC settled the Covad antitrust suit. To settle that suit SBC agreed to a $600M "take or pay" contract for Covad services over the four years, which would be used to implement SBC's planned national expansion.

When SBC and Verizon decided to avoid each others' territories last fall, they had no use for Covad, and were likely to have to pay for services they didn't need. The contract was apparently tight (Khanna's a good lawyer), so SBC got off cheap. Much of the money is in the form of loans.

This is the second SBC payoff to avoid a lawsuit; a better part of $100M was kicked in to prevent a lawsuit on the Prodigy deal. It's presumably smart for SBC to avoid discovery; antitrust law has been whittled away, but SBC (and Verizon) have $2-5B per year in "extraordinary profits" that make them vulnerable.

Covad grabbed the deal, however, because nearly any other means of closing their $100M+ funding gap would involve ceding control of the company to new investors. Instead, current shareholders, including management, will do very well if the company succeeds. Covad speaks of being "fully funded" to some arbitrary point, but will have future cash needs. The deal probably means additional layoffs.

We are journalists, not investment advisers; invest at your own risk and do further research.

Copyright 2001 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

"The power of the printing press belongs solely to those who own the presses"
—A.J. Leibling

The Internet is the cheapest printing press ever invented.

Related articles:
	[Nov. 20, 2001]	From Clinton's Cabinet to SBC President
	[Oct. 1, 2001]	DSL Prime News: SBC Good and Bad
	[Aug. 30, 2001]	DSL Prime News: SBC's Nefarious Plan