WASHINGTON, May 19 /PRNewswire/ -- SBC Communications (NYSE: SBC) Chairman
and Chief Executive Officer Edward E. Whitacre Jr. today told U.S. Senators
that the company's proposed merger with Ameritech (NYSE: AIT) will "do more
for consumers and competition than anything that has occurred since passage of
the Telecommunications Act of 1996."
In testimony before the before the Antitrust, Business Rights and
Competition Subcommittee of the Senate Judiciary Committee, Whitacre outlined
the pro-competitive benefits of the "National-Local" strategy that the company
is fine-tuning now.
Under the "National-Local" strategy, the new SBC would enter 30 U.S.
markets outside its traditional territory, competing with Bell Atlantic,
BellSouth, MCI/WorldCom, AT&T and others for business and residential
customers by offering a full range of services, including local and long
distance. Combined with the top 20 markets the two companies currently serve
in their regions, this strategy would give the combined company a presence in
the nation's top 50 markets that would be backed by a state-of-the-art
nationwide voice and data network, and a growing international network.
According to Whitacre, the "National-Local" plan's impact on competition
will be "positive, long-lasting and far-reaching." The new SBC will offer an
additional 70 million people a new, vigorous competitor that will "force the
large long distance companies to abandon their current strategy of competing
around the edges in local service" while also spurring competitors to respond
in kind in SBC's territory. "Driving up competition in our markets is a risk
we decided to take," said Whitacre.
Whitacre also described changes in the global telecommunications market
that led to the merger announcement on May 11. "Today's telecommunications
markets do not respect or understand geographic boundaries," said Whitacre.
With a handful of international giants ready to compete for customers
anywhere, he said, the goal of the combined SBC-Ameritech "is to be one of the
successful global competitors...delivering any service customers want,
anytime, anywhere."
In closing his testimony, Whitacre said the SBC-Ameritech merger meets the
standards voiced last week by President Clinton of allowing newly-merged
companies to become better global competitors without unfairly raising prices
or diminishing service to American consumers.
SBC Communications Inc. is a global leader in the telecommunications
industry, with nearly 34 million access lines and over 5.6 million wireless
customers across the United States, as well as investments in
telecommunications businesses in 10 countries. Under the Southwestern Bell,
Pacific Bell, Nevada Bell and Cellular One brands, SBC, through its
subsidiaries, offers a wide range of innovative services, including local and
long-distance telephone service, wireless communications, paging, Internet
access, and messaging, as well as telecommunications equipment, and directory
advertising and publishing. SBC (http://www.sbc.com) has more than 118,000 employees
and reported 1997 revenues of $25 billion. SBC's equity market value of
$80 billion as of March 31, 1998, ranks it as one of the largest
telecommunications companies in the world.
TESTIMONY OF EDWARD E. WHITACRE, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SBC COMMUNICATIONS INC.
BEFORE THE ANTITRUST, BUSINESS RIGHTS
AND COMPETITION SUBCOMMITTEE
SENATE JUDICIARY COMMITTEE
MAY 19, 1998
I want to thank you for the opportunity to testify before this
subcommittee today concerning the proposed merger of SBC and Ameritech and the
implementation of the Telecommunications Act of 1996.
The purpose of my testimony is to discuss the proposed SBC-Ameritech
merger and how it will benefit competition and consumers.
I have organized my testimony around the following key points:
-- Consumer demand is transforming the market for telecommunications
services into a global marketplace, where ultimately there will be
a limited number of integrated global companies competing with an
increasing multitude of regional, national and local companies.
-- SBC's strategy is to be one of those U.S. based global
telecommunications companies and the merger of SBC and Ameritech is
necessary to accomplish this objective and meet our customers needs.
-- There will be significant competitive and consumer benefits from the
proposed SBC/Ameritech merger nationally and in the two companies'
traditional 13-state territory -- it will bring on the types of real
competition, real choice and real consumer benefits that Congress
envisioned in the 1996 Act.
I. The Telecommunications Marketplace Is Global In Nature
The U.S. and world economy are becoming more global and the U.S.
telecommunications industry is being driven by that globalization. One of the
most significant phenomena facing our industry today is the evolution of the
marketplace for telecommunications products and services. The world is
shrinking in terms of commerce, travel and telecommunications. The
telecommunications marketplace is becoming global in nature. Our merger is a
critical step toward removing the word "regional" from the way SBC is
described and giving this country a global competitor.
The global market for all telecommunications services was approximately
$700 billion in 1996, and has been growing an estimated 20% per year. North
America accounts for 32%, Europe accounts for 33%, and Asia accounts for 27%
of worldwide revenue. Approximately 20% of all U.S. toll traffic now
terminates in foreign countries.
The major international carriers are well known companies that include:
AT&T, WorldCom/MCI, Sprint, GTE, Bell Canada and the regional Bell companies
in North America; British Telecom, France Telecom, and Deutsche Telekom in
Europe; and Nippon Telephone and Telegraph in Asia. Moreover, these major
international carriers are forging global alliances. For example, Global One
consists of Sprint, France Telecom and Deutsche Telekom. World Partners
consists of AT&T and 4 non-equity partners, including Unisource, which itself
consists of the Dutch, Swedish, Swiss and Italian PTTs. In addition,
MCI/WorldCom and Telefonica control a number of South American telephone
entities.
The point is that global telecommunications carriers today must be capable
of providing the full range of services on an international basis in order to
follow their customers. In SBC's view, this globalization of the
telecommunication marketplace ultimately will result in a half dozen or so
integrated global competitors vying with a very large number of regional,
niche and local competitors.
II. SBC's Ameritech Merger and Its "National-Local" Strategy
In recognition of this evolution of our industry and the need to serve
customers with global needs, SBC has established an objective to be one of the
successful U.S. based integrated global competitors that will likely emerge.
In order to accomplish this objective, SBC will -- through its merger with
Ameritech -- create a new telecommunications company with both national and
international service capabilities, through what we call a "National-Local"
strategy. We are a big company today, but inevitably we need the added size
and scope this merger brings if we are to successfully implement this strategy
and become an integrated global competitor.
The centerpiece and critical component of this "National-Local" strategy
is our merger with Ameritech. Prior to the merger, SBC had no plans for a
broad scale entry of out-of-region local markets because the costs and risks
were too high for us to take on alone. The combined company -- the new SBC --
will have the assets, scope, scale and personnel to compete on a local,
national, and international basis with other incumbent local exchange
carriers, competitive local exchange carriers ("CLECs"), interexchange
carriers and global competitors. The new SBC's combined assets will serve a
13-state region that includes a large number of the Fortune 500 companies, and
it will have operations in 19 foreign countries in Europe, Asia, Africa, and
in North, South, and Central America.
The merger with Ameritech will enable SBC to implement a three-pronged
"National-Local" strategy.
First, the combined company will fulfill the promise of the '96 Act --
competition in all telecommunications markets -- by entering the top 30
markets outside the combined company's traditional 13 state region --including
Seattle, Salt Lake City, Phoenix, Cincinnati, Pittsburgh, Philadelphia,
Boston, New York, Washington and New Orleans. In this way, the new SBC will
be capable of more effectively serving customers in the top 50 markets in the
U.S (e.g., 30 out-of-region markets and 20 in-region markets). The new SBC
will then build upon its growing national and international presence to serve
the worldwide, global telecommunications marketplace.
The combined company will enter the top 30 out-of-region markets through a
combination of building and acquiring facilities, and partnering with other
facilities-based carriers. The new SBC will be the first company to serve both
residential and business customers on a national basis, and provide them a
"one-stop shop" for local exchange, long distance, wireless, high speed data,
and Internet services. Implementing our National-Local Strategy will involve
a multi-billion-dollar effort in operating expenses and capital expenditures
and thousands of additional employees for this effort over the next 10 years.
Second, the combined company will, as we say, then "connect the dots"
using the 50 local markets as a platform for a national capability. That is,
we will take our proven track record of success in providing high quality
local exchange service and build upon that experience and expertise to create
a national, state-of-the-art voice and data network, providing an integrated,
competitively priced new and improved mix of local, long distance, high speed
data, and Internet services to business and residential consumers in both in-
region and out-of-region markets.
Third, the combined company will interconnect its national, state-of-the-
art voice and data network with its international operations to create an
international network and become a U.S. based integrated global
telecommunications provider able to follow the traffic and its customers
around the world.
III. The Competitive Benefits of the SBC/Ameritech Merger
A. The Merger Will Benefit Consumers and Competition
This merger will result in significant benefits to competition
and consumers:
-- First, residential and business consumers in the 30 new markets
outside of the companies' current territory will benefit from the
increased competition that will result from our entry into markets.
We will be a strong, effective full-service competitor in those
markets. These out-of-region markets have a population of 70
million people. Neither company alone could effectively implement
this broad strategy and enter all of these markets in competition
with BellSouth, Bell Atlantic, USWest, GTE, the large interexchange
carriers and CLECs without the companies' complementary assets and
combined strengths. We will be a strong, experienced, more
effective competitor in these 30 markets and consumers will benefit
from the new competition, new choices and new and improved products
and services we will bring to those markets.
-- Second, competition in the 30 new out-region markets will also be
promoted as other carriers respond to our entry in those markets.
Today the major long distance companies and CLECs operate with the
knowledge that it is less likely regulators will allow the BOCs
into long distance if CLECs do not aggressively enter the local
market, particularly the local residential market. As a result,
the long distance carriers and CLECs have a strong incentive to
protect their long distance profits and retain their competitive
advantages by delaying their entry into the local market. But,
when we enter the local and long distance markets out-of-region,
the IXCs and other CLECs will have to compete in those local
markets and offer a full bundle of services in order to both
protect their customer base and grow their business.
-- Third, competition in our in-region states will also be enhanced.
As we enter their markets, other RBOCs, GTE, the long distance
carriers and other CLECs will not only defend their home turf and
markets, but will also accelerate their entry in our in-region
markets
B. The Merger Is Critical to the National-Local Strategy
Why does SBC need to acquire Ameritech to accomplish this "National-Local"
strategy? To date, no company has committed to, much less delivered, such a
broad-based residential and business local competitive entry. To undertake
this National-Local strategy requires economies of scale and scope and
sufficient management, technical and financial resources. Stated another way,
neither SBC nor Ameritech alone have the scale, scope, resources, management
and technical ability to implement this ambitious national and global
strategy.
The combined company will have the critical mass of employees, customers,
facilities, and know-how to compete against the other international, national,
regional and local telecommunications carriers that will be operating in the
U.S. and around the world. Our combined size and purchasing power will enable
the new SBC to obtain volume discounts on purchases of hardware and software
necessary to build-out its national network. Our scale and scope will also
diminish the costs and risks of developing new products and services. Our
merger with Ameritech will give us the assets, resources, skills, management
and direction which we believe are necessary to become a more effective
competitor and to do what no other company has been able to do date.
C. The Merger Is About the Future Not the Past
I'd also like to address a concern raised by some who have suggested that
SBC and Ameritech have set out to turn back the clock and recreate the old
"AT&T Bell System." Nothing could be further from the truth. The competition
genie is out of the bottle. The market opening requirements and duties
imposed by Sections 251 and 252 of the Act remain in effect and will continue
to apply to the combined company. No company will ever be in a position to
monopolize the nation's local and long distance service again.
The old Bell System spanned the nation and government's concerns all
related to AT&T's integration of a dominant long distance business and a
dominant equipment manufacturer with the local business that had an exclusive
franchise. Our new company will be an incumbent local carrier (that has
opened its market and no longer has an exclusive franchise) in only thirteen
(13) states, we will have no manufacturing capability and we will be a new
entrant in the interexchange market. In the majority of markets in which the
combined company will operate, we will be a new entrant competing with a BOC
or independent LEC, like GTE or Cincinnati Bell, and CLECs, not joining them.
This historic combination is not about recreating anything from the past.
It's about creating the future. It's about creating a U.S. based national and
global integrated competitor, one that competes directly not only with other
former Bell companies, but also with global competitors (such as AT&T,
WorldCom/MCI, Sprint, France Telecom, Deutsche Telekom, Telefonica and
international alliances) to deliver any service customers want -- anytime,
anywhere. In the process, we will bring on the real competition, real choice
and real consumer benefits Congress envisioned in the 1996 Act.
D. Competitors' Claims About the Local Market Are Misleading
Some competitors claim that our local markets are not open and the
Ameritech merger should be rejected on that ground. That argument is simply
not valid. Our opponents' rhetoric alleging that our local markets are not
open to competitors is being overcome by indisputable market facts. To date,
SBC has lost over 900,000 customers and Ameritech has lost over
600,000 customers to the CLECs, for a combined total of over 1.5 million
customers lost to the competitors. We have lost more lines to competitors
than are owned by over 90 percent of the independent LECs in this country.
The facts of the marketplace demonstrate that the local market is open for any
company who chooses to compete in that market.
Additional evidence that the '96 Act has opened the local exchange to
competition is the amount of investment being made by the CLECs throughout the
U.S. CLECs have had no problems raising money on the capital market and their
public offerings have consistently been over-subscribed. In the first quarter
of 1998, CLECs accounted for more than 50 percent of the net new business
access lines in the country. In 1996, CLECs installed over 500 new switches,
and more than 270 in the first half of 1997 -- far more new switches than were
deployed by the BOCs. CLECs, other than AT&T and MCI, have doubled their
installed base of fiber, and have deployed over 50% as much new fiber as the
BOCs. Counting AT&T, WorldCom/MCI, and Sprint, the CLECs have surpassed the
BOCs in capital investment in local exchange facilities by $4 billion.
Firms do not make these kind of investments and capital expenditures --
and AT&T and WorldCom would not be paying substantial premiums to buy Teleport
and MCI respectively -- to compete in a local marketplace that is not open to
competition.
We would not be committed to the National-Local Strategy unless we
believed that the local market was open and we could compete effectively in
that market. SBC's in-region markets are open today and we are fully
committed to continuing and building upon that market opening process. When
the merger is completed, we will have approximately 30 percent of the access
lines in the country and we will do everything necessary to ensure that those
lines are open to competitors. In addition, we are also committed to
increasing competition in the remaining access lines that will be located
outside of SBC's geographic territory. It will be clearly be in our interest
and in the national interest, for us to work closely with regulators to ensure
that all local markets are fully open to competition. As a result, we believe
that any attempts to delay or defeat the Ameritech merger on the grounds that
the SBC local markets are not open to competition will not only be
unjustified, but will result in less, not more, local competition. This
merger is a great opportunity to jump start local competition.
IV. Conclusion
Our National-Local strategy, as explained above, will jump start the
competitive process envisioned by the 1996 Act. Unlike other CLECs, we will
compete for residential and small business customers, as well as large
businesses across the country. That is why we firmly believe that the
Ameritech merger, which empowers us to implement the National-Local strategy,
actually fulfills the promise of the Act. We fully recognize that the
Congress, DOJ, FCC, and state regulators will have questions both about our
merger with Ameritech and our "National-Local" strategy, and we intend to
address those questions. But we sincerely hope that public policy makers
will focus on the pro-competitive benefits of the merger and our strategy and
review this transaction on its merits and in an expeditious and timely manner.
As President Clinton noted recently, the nationalization and globalization
of industries put "a premium on bigness, partly so you can afford to get into
new market areas, partly so you can afford to handle bad years -- you have to
have more money." SBC also agrees with President Clinton that - "[t]he test
of all these mergers ought to be this. Does it allow them to become more
globally competitive in ways that don't unfairly raise prices or cut the
quality of service to consumers in America?" We believe the answer to both
questions with regard to our merger with Ameritech is "yes." Moreover, we
believe that the Ameritech merger and the resulting "National-Local" strategy
will achieve just those procompetitive objectives: global competitiveness,
lower prices and higher quality services overall.
I want to thank you again for your subcommittee's interest in the
SBC-Ameritech merger.
SOURCE SBC Communications, Inc.
 back to top
Related links:
http://www.sbc.com
CONTACT:
Larry Solomon of SBC Communications Inc.,
210-351-3990, or fax, 210-351-2903, or e-mail,
solomonl@corp.sbc.com
|
