WHITACRE'S BLUNT MESSAGE MAY BACKFIRE WITH REGULATORS

SBC Communications' plans to reduce its work force by “several thousand” employees is not atypical in the current telecom market, but attributing the cuts to burdensome regulations may create an unwanted political backlash that could hinder legislative and regulatory efforts for all incumbent carriers.

While other Bell companies announcing layoffs have cited the difficult economic environment despite maintaining profits (see table), SBC Chairman and CEO Ed Whitacre said his company has responded well to economic challenges. Instead, job cuts are needed to overcome federal and state regulatory burdens, he said.

“We are dealing with more than a shrinking economy,” he said during SBC's third quarter earnings call last week. “We also have to contend with an adverse and uncertain regulatory environment that has only exacerbated the problems that we face.”

Despite the FCC's current composition, considered to be Bell company-friendly, Whitacre complained that SBC's wholesale operation is burdened by 3 million measurements per month, that it must “give service away” to DSL competitors and that TELRIC pricing of unbundled network elements doesn't make any sense. He also criticized state regulators in California and Illinois.

“Regulators are expecting more out of us, and I don't think that's justified and I don't think it's cost-based,” he said.

While that may be true, SBC would have been better served if Whitacre had proposed solutions to regulatory problems rather than “self-centered” criticism that will accomplish nothing, said Ron Cowles, principal analyst for Gartner Dataquest. Such comments are typical of SBC's in-your-face corporate demeanor that contributes to the Bell company's oft-contentious relationship with regulators, he said.

“There are better ways to tackle this,” Cowles said. “If you put undue pressure on these regulators, they'll come back at you.”

Of course, regulators can't target a single company, which means ill will toward SBC affects other ILECs, Cowles said. “It backfires not only against [SBC] but against the entire industry,” he said. “Unfortunately, everyone's going to pay the piper.”

But at least one Bell company representative applauded Whitacre for “a very articulate presentation of the issues” surrounding the Tauzin-Dingell bill, which would give Bell companies most of the regulatory relief they want.

“This is a guy who's telling it like it is,” said Herschel Abbott, BellSouth's vice president of governmental affairs. “When you get complete candor and honesty, some people can be ticked off if they want.

With Tauzin-Dingell proponents hoping to pass the bill through the House this year so the Senate can consider it next year, many see Whitacre's statements as a message to Capitol Hill.

But Whitacre's words likely will not ring as loudly, said Rudy Baca, global telecom strategist for The Precursor Group. “The way to get Congress' attention is through layoffs — that's what they understand,” he said. “They certainly got their attention. Whether Congress will do something productive, I'm not as convinced.”