LITTLE SYMPATHY

At a meeting of the U.S. Telecom Association this month, USTA Chair Margaret Greene told attendees that Baby Bells should fight the monopolistic stereotype that “makes it hard for us to garner sympathy, even in the most dire of economic circumstances.”

Case in point: When SBC CEO Ed Whitacre announced he was terminating 11,000 employees last month, no one felt sorry for him. Because he blamed the layoffs mostly on UNE-P and its unfairly low rates, major newspapers from Chicago to Silicon Valley said Whitacre was “whining.” They were right.

Analysts from Lehman Bros. and Jefferies have called the threat of UNE-P to Bells “exaggerated,” especially compared with that of wireless substitution. At an FCC hearing last week, a panel of economic experts chimed in on possible solutions to the current telecom slump. No one suggested killing UNE-P as an industry panacea. In fact, Yale School of Management Professor Barry Nalebluff said the industry needs “more, not less, pressure on opening up local markets.”

If Whitacre's complaint is that he's losing market share, he should reread the Telecom Act of 1996 because that was the whole idea. If his complaint is that he's losing money, he might consider how many employees he could afford to hire back if his company hadn't been fined $6 million by the FCC last week for “willfully and repeatedly” shutting out competitors in violation of the SBC/Ameritech merger agreement (on top of the $60 million it had already paid for similar offenses).

If his complaint is that TELRIC-based UNE-P pricing will breed an industry of parasites that never build their own networks, he should reread the U.S. Supreme Court's opinion on the matter. In light of the $55 billion that competitors poured into network infrastructure in the four years following the Telecom Act, the court called this argument “contrary to fact.”

Almost every company in this industry has had to cut its work force to manage the slump. But using a round of layoffs to intimidate regulators is in bad taste, and it insults those who lost their jobs. Whitacre said the bulk of the cuts would come to states in the Midwest that set the lowest wholesale rates. If not a threat, this seemed at least like Whitacre's attempt at operant conditioning: States that don't do what Whitacre wants will be punished. It feels like bullying, and it only feeds the stereotype that Margaret Greene is trying to fight.

State and federal regulators shouldn't be intimidated into serving SBC. When markets are sufficiently competitive, regulators can adjust rates accordingly. Of course, increased competition won't make Ed Whitacre happy. But he's not likely to gain much sympathy.