BellSouth

Many critics cite competitive carriers’ struggles as an indication that the Telecommunications Act of 1996 failed to create competition in the local loop. BellSouth Chairman and CEO F. Duane Ackerman says CLEC woes are the result of an overabundance—not absence—of competition.

BellSouth website Company profile from Yahoo

BellSouth has “plenty of competition” in its southeastern U.S. territory, where CLECs have claimed almost 2.9 million lines, Ackerman says. The problem is that market share is divided among the region’s 1700 registered CLECs, about 290 of which remain active.

“This is a capital-intensive business,” Ackerman says. “It’s a business that requires a tremendous amount of back-office support, and it scales rather rapidly. I have a real question about whether the marketplace under any circumstances could have supported that number of competitors.”

Like competition, the economic downturn is a fact of life for BellSouth, Ackerman says.

“The softness is there, it has occurred rather rapidly, and I don’t think it’s over,” Ackerman says. “I think there is more to come.”

But broadband demand continues to increase, and BellSouth plans to capitalize by giving 70% of its customers access to DSL by the end of the year. While many question whether any providers—even former Bell companies such as BellSouth—are profiting from selling Internet access over DSL, Ackerman says experience tells him that’s not the most important reason to invest in the technology.

“I would say that the SS7 investment was a dead loser when we put in the local infrastructure, but what it did was enable all the custom-calling features that came down the road,” he says. “Increasing penetration for broadband will continue to open up opportunities for future applications, which will, in turn, drive more revenue.”

But the revenues that can be driven by DSL are limited by the bandwidth constraints of copper. With this in mind, BellSouth installs higher-capacity fiber to all new neighborhoods built in its territory, Ackerman says.

“Once you dig a trench, there’s not a lot of difference in the cost of laying a fiber versus laying a copper wire,” he says. “The electronics that go on the end of that fiber is the issue.”

Ackerman is less optimistic about the economics of replacing copper with fiber in established neighborhoods.

“A neighborhood that is already established has driveways, landscaping, sprinkler systems, fencing—it has all of those things in addition to your additional charges for electronics, and that is not a good economic decision,” he says.

Also slow has been BellSouth’s progress in pursuing long-distance approval within its territory.

Since the FCC denied BellSouth’s Section 271 applications for Louisiana and South Carolina more than three years ago, the carrier has failed to get any state public utilities commissions in its territory to even submit its long-distance applications to federal regulators.

BellSouth’s stagnation on the long-distance front has been “a disappointment” to Wall Street, according to Patrick Comack, senior equity analyst at Guzman & Co.

'There’s been speculation that BellSouth would make a bid for Sprint now that WorldCom’s out of the picture, but things have changed, and I don’t see that happening.' --Patrick Comack senior equity analyst Guzman & Co.

“The Georgia PUC has been tough,” Comack says. “We’re expecting four of its nine states in 2001—Georgia, North Carolina, Louisiana and maybe Florida—might get squeezed in by the end of the year.”

Ackerman says securing Section 271 approvals is a priority for BellSouth, noting that aggressive pricing plans indicate long-distance services are more profitable than interexchange carriers claim.

“There’s a sense that all the margin’s gone out of that business, but I don’t believe that,” he says. “There’s still margin and there’s still money to be made in the long-distance business.”

There’s also money to be made in the wireless business, and Ackerman says he is pleased with the progress of Cingular Wireless, BellSouth’s wireless joint venture with SBC Communications. Cingular’s existence makes it more likely that BellSouth will remain the only former Bell company not to make a significant domestic merger, Comack says.

“There’s been speculation that BellSouth would make a bid for Sprint now that WorldCom’s out of the picture, but things have changed, and I don’t see that happening,” Comack says. “They have a relationship with Qwest [Communications] on the long-distance side. On the wireless side, they have a joint venture with SBC—Cingular, which is the number-two wireless company in the U.S.—and they’re going public. So it’s not like they could use Sprint’s wireless network. That would be too redundant an acquisition.”

Meanwhile, BellSouth will continue to rely on organic growth in the blossoming southeastern U.S. market, with a watchful eye on the economic slowdown, Ackerman says.

“We’re going to watch our expenses, but we’re going to have to be sure that we don’t collapse things for the long pull,” Ackerson says. “We’re going to have to be sure that we address those marketplaces that are still growing rapidly and build our platform for the future development of not only the broadband infrastructure, but all the applications that will ride that infrastructure down the road.”

This carrier profile appears in the June 4 issue of Telephony.