SBC's Daley: telecom in meltdown

CBS.MarketWatch.com ^ | October 7, 2002 | Rex Crum

[HAL9000]

"The industry is in a meltdown," Daley said Monday in an address at the Commonwealth Club of California in San Francisco. "And it's just a brushfire compared to the wildfire that could be on the way."

And Daley's stock options are going underwater.

Daley, a former Secretary of Commerce in the Clinton Administration and chairman of Al Gore's 2000 presidential campaign, said that the unintended results of the Telecommunications Act of 1996, which was intended to open up local and long-distance phone service to competition, have created a business situation whereby regional Bell carriers such as SBC are forced to open their network lines to smaller and larger competitors, and, in effect, operate those lines at a loss.

The solution is obvious - structural separation of the Baby Bells. Split SBC into wholesale and retail units. The SBC wholesale monopoly can profitably sell access to all of the retailers, including SBC retail, at the same price. That arrangement will simplify the determination of wholesale pricing and rate of return.

SBC should also unwind their investments in Mexico, Africa, etc. and reinvest that money in the areas of the US that are their primary responsibility.

SBC can also earn money by competing for local service against the other members of the Baby Bell cartel (Verizon, Bellsouth, etc.)

Finally, SBC should dump Daley and Whitacre, and get some executives who understand the principles of competition.

[Cicero]

I would have said that Daley is part of the problem.

[alex]

Daley, a former Secretary of Commerce in the Clinton Administration and chairman of Al Gore's 2000 presidential campaign, a true friend of working class and a liberal democrat with a big 'L', showed his true colors and said he would lay off another 11,000 employees on top of the 10,000 jobs it had already cut by August.

I suppose gave Repubs nice possibility to spend all these soft money on areally effective attack issue ads.

[Bogey78O]

'The solution is obvious - structural separation of the Baby Bells'

Nah... That solution is designed just to get more hands in the cookie jar.

Nationalization would be a better course of action.

[Bogey78O]

"Broadband is dominated by cable companies, which are unregulated monopolies," Daley said. "Only phone company-provided DSL is regulated, and pervasively so. These regulations raise our costs by hundreds of millions of dollars. Most new technologies in telecom are created by someone else and these guys, the Lucent's, the Nortel's, are dying."

This is the truth..what's wrong with it?

Telecoms are like the "richest 1%". They make a great scapegoat.

[keithtoo]

As a faithful Dim, he oughta love regulations? What is he complaining about? He sounds like a Republicam.

When you lie down with Democrats, you wake up with regulations.

[TopQuark]

I guess, you do not need an MBA with that much confidence.

[HAL9000]

I guess, you do not need an MBA with that much confidence.

SBC has legions of MBAs, PhDs, economists, and other assorted eggheads and bureaucrats. But it is ultimately controlled by Democratic politicians and unions.

I did watch the FCC's en banc meeting on the economics of the telecom industry today. Most of the distinguished participants said that the best way to attract investment capital to the telecom sector is intermodal and intramodal competition.

[B4Ranch]

SBC's Daley: telecom in meltdown

According to Daley, about 500,000 telecom-industry jobs have been lost and $2 trillion in market capital has evaporated in the last 18 months.

[B4Ranch]

Sorry but I think you have got the picture wrong. The major companies, regional Bell carriers (SBC, etc) that own the local telephone poles, telephone cables, central switching offices, do all the engineering for above ground, underground and inside company central office buildings and maintain the all of aforementioned, are required by the SEC to sell space and facilities inside the central switching offices to independant telephone companies at below cost prices.

Now you'll ask how do I know this? Well, I know someone in the Co-Location Distribution end of SBC in Nevada. She and I have had many discussions about this subject. (I cannot bring actual prices into this discussion) If our government wanted to keep the cost down they would go back to the old Ma Bell system, but there was too much money to be made by independant companies who could further the telecommunication growth faster than Ma Bell had the funds for, so the "Break-up" occurred.

Imagine owning a "telephone company" when you don't own the poles, the switching equipment or even the telephone cables that provide your communication system capabilities. All you have is a bunch of sales personel who sell your contract with the major company to your local folks at a very profitable cost to you.

Was this beneficial to America and the world? Yes, I think it was, but was there a price to be paid that we didn't see? Yes, I think there was. The Telecommunications Act of 1996 opened the central offices to smaller independant companies where space and facilities would be sold. New central switching office equipment was bought by all the major companies to allow this. During the rapid growth of Nortel, Lucent and the others billions of dollars were made by all. Now that the economy isn't going so strongly, just maybe Clinton's plan is backfiring, nationwide and worldwide layoffs are occurring. There has been major belt tightening at all of the telecommunication companies. Restrictions on education of new technical systems, travel and lodging, restrictions on who can carry company cellphones, who actually needs a pager, etc. are happening with all the big companies.

The major question now is, "Why are the major companies required by the SEC to continue to sell space and facilities to independant telephone companies at below cost prices. My guess is that Congress won't even touch this subject until after the elections and they are all firmly seated once again. Whether the long wait damages America further is a question that should be brought up to our legislators.

[GailA]

Didn't a lot of these regs come out of the '96 Telcom Act? Wasn't Slick in charge then?

[Psycho Francis]

I've often wondered what cost the RBOCS assign to all the infrastructure that was created while the phone co was a monopoly. The 'last mile' didn't cost SBC a dime....

are required by the SEC to sell space and facilities inside the central switching offices to independant telephone companies at below cost prices.

[mwl1]

I feel sorry for the good people of SBC who have put their faith in these two absurd leftist big-government types: Whitacre and Daley.

Having said that, and mindful that even Daley can't do that much damage in less than two years, I hope he ends up broke and discredited, because he is scum.

[B4Ranch]

I'm not quite sure of the dates.

[B4Ranch]

The costs, I don't know. Probably just the actual cost of placement and then the maintenance costs yearly. I do know that they have to pay taxes on all 'structure'. That's why you'll see crews taking down the poles or removing tel cable when a new underground cable goes in.

[B4Ranch]

When you lie down with Democrats, you wake up with regulations.

Because the Republicans won't fight hard enough to stop them. I've been watching Bush maintain the open border policy that Clinton rigged up to bring us down to a third world country. If we want changes, why do we keep voting in incumbants???

[AFreeBird]

If our government wanted to keep the cost down they would go back to the old Ma Bell system, but there was too much money to be made by independant companies who could further the telecommunication growth faster than Ma Bell had the funds for, so the "Break-up" occurred.

Essentially, the break-up of the Bell System was in the works since 1913. It wasn't that MaBell didn't have the money for growth it was the regs placed upon her by consent decrees. Indeed, Ma Bell had very, very deep pockets, but if you go back to 1956, a consent decree between the gov and AT&T prevented Ma and her various companies [i.e., WesternElectric] from competing in any other industry, or technology than telephones. For instance; a telephone switch is nothing more than a computer, but Bell was prevented by law from selling computers.

So the "Break-Up" occured not becaue Bell couldn't grow fast enough, but because MaBell had so much money, other people wanted a piece of the pie.

After divestiture in 1984, the laws further constrained AT&T from competing and forcing them to sell access to their lines to competing companies with rates dictated by government.

Now the 96 law was intended to open up local service to competition since the RBOCs have a monopoly on the last mile of lines. They wanted to get into long distance to compete with AT&T, which is easier since they can interconnect their local offices with each other rather cheaply and without having to use AT&T or other lines for the interconnect. On the otherhand they were still overcharging AT&T for access to local lines. In essence, they wanted to have their cake and eat it too.

Personnally I like the idea of spliting the RBOCS into two seperate entities. A retail and wholesale unit if you will.

[HAL9000]

The major companies, regional Bell carriers (SBC, etc) that own the local telephone poles, telephone cables, central switching offices, do all the engineering for above ground, underground and inside company central office buildings and maintain the all of aforementioned, are required by the SEC to sell space and facilities inside the central switching offices to independant telephone companies at below cost prices.

The "cost" is opportunity cost. The RBOCs are complaining that the wholesale price set by the regulators is lower than the retail price. They want to charge retail prices for wholesale service.

The Telecommunications Act of 1996 established the "total element long-run incremental cost" pricing model, also known as "TELRIC". The US Supreme Court upheld the TELRIC model in their Verizon Communications v. FCC decision on May 13, 2002.

Since the ILECs are a monopoly common carrier utility, I think ILECs should charge the the same rate for wholesale service to both the ILEC and CLEC retail units.

Imagine owning a "telephone company" when you don't own the poles, the switching equipment or even the telephone cables that provide your communication system capabilities.

Imagine owning a business with quasi-governmental powers of eminent domain, and running your cables and poles through through private property without paying rent to the property owner.

I don't want to charge the ILEC rent for their buried cables in my yard, but I do want them to sell wholesale access to those lines. That's a fair deal for everyone. The ILEC gets to use my property rent-free, the CLEC pays the ILEC a wholesale rate for access to that line, and I get a choice of which retail telephone service to use.

[B4Ranch]

Thanks for the comments. One thing that I wondered about is when an area grows with new housing and businesses, enough to require more space and facilities for the independant telephone companies, who should pay to enlarge the central switching building? Currently it is the regional Bell carrier who bites the bill for this. They can't raise prices to the independant companies to waylay those costs either.

[Bogey78O]

Yea..TelCom 96 was the monster that gave us Clear Channel on every station too.