SBC Long Distance Boot Scoots into Texas

Posted: 08/2000

SBC Long Distance Boot Scoots into Texas
Competition Gets All Bundled Up
By Kim Sunderland

By Kim SunderlandThere’s a new kid in the long-distance business in Texas and she ain’t
foolin’ around. SBC Communications Inc. (www.sbc.com) landed approval this summer from the FCC
(www.fcc.gov) to provide in-region interLATA services in Texas, where the BOC already operates as the local service incumbent.

SBC’s Section 271 approval is the second handed out by the FCC since last December when the federal agency approved Bell Atlantic Corp.
(www.bell-atl.com) to provide in-region long-distance services in New York. Following a rocky start, Bell Atlantic now is up to speed, reportedly pulling thousands of customers away from the Big Three long-distance carriers.

And that’s part of the plan for SBC, as well, says Edward E. Whitacre Jr., SBC’s chairman and CEO, who adds that long distance will play an important role in SBC’s growth.

“It is more than just another service offering,” he says. “Long distance rounds out our full-service bundle and is key to capitalizing on our company’s single biggest growth opportunity and new core business: data.”

SBC’s 271 approval will give Texas consumers one-stop shopping for communications and entertainment services, Whitacre says. And for Texas business customers, it means that SBC is closer to being able to follow them around the globe, offering integrated, end-to-end and customized packages of advanced voice and data products, he adds.

“It’s not all about long distance. It’s about the bundle,” says telecom analyst Jeffrey Kagan
(www.jeffkagan.com). “Bundles will be king. Everyone will be marketing bundles of local, long distance, Internet and wireless. The more services a customer uses from one company, the less chance they will switch away.”

The trend is clear, he says, as these bundles of integrated services bring customers closer to a marketplace where there is no difference between a local and a long-distance call. Kagan believes that eventually, customers will buy blocks of anytime, any-distance minutes to use from their wireline or wireless phones for local or long-distance calls.

Kagan also says that the FCC’s ruling will unleash a flurry of competitive offers from all the competitors in Texas. “All of a sudden,” he says, “customers will have loads of choice, not just from SBC, but also from the competitors who will also crank up their marketing of local and long-distance bundles.”

SBC becoming an IXC in Texas is a significant development for several reasons, according to telecom attorney Mitchell F.
Brecher, a partner with Greenberg Traurig (www.gtlaw.com).

First, Brecher says, SBC can be expected to become a major competitive force in the Texas market very quickly. Based on how rapidly ILECs such as Southern New England Telephone in Connecticut and, more recently, Bell Atlantic in New York, were able to capture market share, SBC should be able to have similar success, he says.

“From a reseller perspective, SBC may become a major wholesale provider to resellers and regional carriers,” Brecher adds. “The emergence of SBC as an alternative supplier of wholesale services may somewhat ameliorate the reduction in major suppliers resulting from [future] mergers–at least in Texas.”

It’s also likely that SBC soon will be able to implement its OSS throughout its operating territories, including the other SBC states: the former Pacific Telesis Group states of California and Nevada and the five Ameritech Corp.
(www.ameritech.com) states. “If that is so, we may see additional Sec. 271 applications from SBC in the near future,” Brecher says.

In fact, now that SBC has secured FCC approval for Texas, it has in place “a successful approach that will be invaluable to helping it enter the long-distance market in 11 more states in its traditional service area,” says Cassandra Carr, SBC’s senior executive vice president of external affairs.

Among the elements that the commission cited as particularly important in the opening of Texas’ local markets were independent OSS testing and adoption of adequate performance measurements.

“We will continue to work jointly with state regulators to bring competition, better prices and more innovation to the long-distance market in our other regions,” Carr says. “We look forward to the day when we can provide long-distance service coast to coast.”

The FCC’s approval was effective July 10. At that time, SBC Long Distance officially launched service under the SBC brand and announced specifics about its residential and business long-distance product offerings.

No Down Time

According to Whitacre, SBC was ready to provide service in Texas on day one.

“We’ve spent the past four years planning for entry into the long-distance market,” he says. “SBC Long Distance has its network in place, systems ready, customer service representatives trained, and marketing organization ready.”

Dave Gallemore, executive vice president of SBC strategic marketing and planning, says SBC has done extensive customer research on what customers want–and don’t want–for long-distance service.

“Our goal is to be a full-service communications provider, not another long-distance company,” Gallemore says. “It’s clear from our research that customers are frustrated with confusing long-distance offers and minimum monthly fees, the hoops they have to jump through to get the best rates, and industry problems like slamming.

“We’re not going to compete with a group of providers that are unpopular with most customers,” Gallemore says.

Long-distance approval also allows SBC to make the most of its $6 billion broadband initiative, dubbed Project Pronto. The initiative, SBC executives say, will make super-fast, always-on Internet access available to nearly all of SBC’s customers, providing most business customers with fiber optic connections and creating a platform to deliver next-generation, broadband-powered services.

SBC’s local network also connects with a long-distance network already in place to deliver products and services nationwide. Through its alliance with Williams
Com-munications (www.williamscommunications.com), SBC has access to a long-distance network that currently reaches more than 50 of the country’s major cities.

Through this network, SBC immediately began offering competitive prices and long-distance products and services to customers in Texas as well as in other states, according to SBC execs.

It’s Unanimous!

The federal approval for SBC wasn’t a surprise. The U.S. Department of Justice
(www.usdoj.gov) earlier this summer gave the FCC the green light, recommending that SBC’s Sec. 271 application be approved.

The DOJ’s decision carried a lot of weight with the FCC, particularly since Justice never has recommended approval of a BOC’s Sec. 271 application. Texas regulators twice approved SBC to provide long-distance services within the state, marking the first time all three regulatory bodies agreed on an in-region, interLATA application.

SBC filed its first 271 application early this year to provide these services in Texas. The DOJ wasn’t fully impressed with SBC’s application. In turn, SBC resubmitted a more thorough application to the FCC this spring. Texas regulators have supported both SBC bids.

Now that the FCC is on board, there’s some speculation that many telecom folks now will be watching to see which
BOC–the East Coast Girl or the Southwestern Gal–performs better in rounding up the long-distance customers. While that may prove to be somewhat of a competition to watch, the bigger competition will be between the Big Three long-distance
carriers and these newly approved incumbents getting in on their game.

The Sheriff Is Watching

SBC’s new service and product deliveries sound as dandy as a much-needed rainstorm on drought-ridden crops, but federal telecom lawmakers still plan to keep a watchful eye on the BOC, just as they are with Bell Atlantic.

“Approval promises substantial benefits for consumers in the form of new service providers, lower prices, tailored and bundled service packages, and better customer service,” the FCC said in its order. “But this isn’t the end of the story.”

SBC must continue to comply with the 14-point checklist requirements of Sec. 271 of the Telecommunications Act of 1996, the commission said, warning that it has a number of enforcement tools at its disposal, including imposing penalties or suspension of approval.

“SBC must continue to comply with the checklist requirements [of the
Telecommunications Act of 1996], and the commission has a number of enforcement tools at its disposal, including imposing penalties or suspension of approval,” the commission warned in its order.

SBC’s “post-approval enforcement framework,” as the FCC refers to it, is detailed in the commission’s Bell Atlantic New York Order. Among other things, the SBC order is similar and says the FCC will receive and review complaints filed by carriers concerning alleged failure by the BOC to meet conditions required for long-distance approval, and specifies several enforcement actions that the FCC can take to address BOC backsliding.

“We envision exercising our Sec. 271 suspension power, when appropriate, through a ‘standstill’ order that could prohibit a noncompliant BOC from enrolling additional subscribers and from marketing and promoting interLATA service,” according to the FCC’s order.

Working in concert with the Texas Public Utility Commission
(www.puc.state.tx.us), the FCC says it will closely monitor SBC’s compliance with Sec. 271 of the Telecom Act. SBC is required to provide the FCC with the same monthly performance measurement reports that it provides to the Texas PUC for at least one year from the date of the release of the order.

“We stand ready to exercise our various statutory enforcement powers quickly and decisively in appropriate circumstances to ensure that the local market remains open in Texas,” according to the order.

And the FCC has shown its willingness to employ such enforcement remedies, as it did in New York when it responded to numerous competitor complaints that Bell Atlantic was backsliding in its market opening obligations.

Morning Breath

But that experience has left a lousy taste in the mouths of competitors.

“The FCC’s approval of SBC’s Texas 271 application raises concerns that the commission has lowered the bar for RBOC interLATA market entry,” says Dena
Alo-Colbeck, director of public policy for regulatory consultants Miller Isar Inc.
(www.millerisar.com).

“SBC has historically followed one of the most aggressively narrowed interpretations of its market opening obligations under the Telecommunications Act of the RBOCs,” Alo-Colbeck says. “Given SBC’s need to file ‘supplemental evidence’ to address the DOJ’s initial concerns with SBC’s application, and the modicum of history of compliance with Sec. 271 that preceded Justice’s ultimate go-ahead, a storm cloud of backsliding issues, such as those experienced by Bell Atlantic in New York, may be looming on the horizon for SBC.”

She believes that the pending storm threatens to sweep up Texas competitors, who now must contend with an incumbent who not only retains its dominant market share, but which also can leverage its position in the long-distance market.

“Competitors can only hope that [the FCC] decision was not premature, but rather was based on a sound evidentiary foundation,” Alo-Colbeck says.

Who’s Next?

Many industry watchers believe BellSouth Corp.
(www.bellsouth.com) in Georgia could be the next BOC in line to file for and possibly receive in-region interLATA approval.

“All of a sudden the states will start falling into place one after the other,” notes one analyst.

In fact, this month BellSouth plans to seek 271 approval in Georgia with state regulators there. The BOC’s OSS completed third-party testing in July on whether its computers successfully provided competitors with the same support system functions that BellSouth uses to maintain accounts for its local telephone customers.

“This testing … continues to reveal no major obstacles to a successful outcome,” says Jere Drummond, vice chairman with BellSouth.

Drummond adds that BellSouth won’t file its 271 application with the FCC “until we are meeting–or exceeding–the levels of success prescribed by Georgia regulators.”

After that, it’s really anybody’s barbecue as long as the lawsuits don’t start piling up in
federal court.

Kim Sunderland is Washington bureau chief for PHONE+ magazine.