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SBC Raring to Go Long in Longhorn State
By
Richard McCaffery (TMF Gibson)
June 14, 2000
SBC Communications (NYSE: SBC) should soon be offering long-distance services in Texas now that the U.S. Justice Department has recommended approving the Baby Bell's application.
Just four months ago the Justice Department recommended denying the petition, but SBC got to work and addressed the three main concerns, which centered on requirements that SBC makes it easy for customers to switch to rival carriers.
The Federal Communications Commission (FCC) is expected to grant final approval in July, which would make SBC just the second Baby Bell to offer long-distance phone service in its own market since Bell Atlantic (NYSE: BEL) secured FCC approval in New York last December.
SBC moved up about 3% in early trading to $49 1/4.
Investors have known the Baby Bells would move into the long-distance market since regulators paved the way with the Telecommunications Act of 1996, but it's good to see it finally happening. It's part of a sea change in the U.S. telecom industry investors have to keep on top of. For example, WorldCom (Nasdaq: WCOM) and Sprint (NYSE: FON) officials cite pending competition in the long-distance market as a key reason why antitrust regulators should approve their proposed merger. The way the thinking goes, it doesn't matter how much of the long-distance market number two carrier WorldCom and number three Sprint control since the Baby Bells bring fresh competition.
Long-distance voice services may be a fading market, but it's a key part of the Baby Bells' strategy of offering consumers and businesses bundled services -- local, long-distance, data, and broadband services.
SBC, whose original territory included 13 states in the Southwest, expects that long-distance revenues will double to $6 billion over the next three years, a 25% compound annual growth rate. The company expects long-distance services will make up 14% of its total revenue growth over this period. This is aggressive, but reachable considering the foothold SBC has with consumers. With Ameritech in the fold, SBC offers local calling services to about 53 million homes. The Texas long-distance market alone is worth almost $6 billion.
Bell Atlantic expects pretty much the same thing. The company, which offers services in the Northeast and Midatlantic, has signed up more than 500,000 long-distance customers since rolling out service in early January. It sees the long-distance market as a $20 billion opportunity for voice services alone.
On the consumer long-distance front, Bell wants to grab 30% of the long-distance market within five years, enough to add about $2 billion in additional revenues. Bell hopes to obtain approval to offer services in Massachusetts, Pennsylvania, and New Jersey next year.
Expect the long-distance market to get crowded over the next 18 months as BellSouth (NYSE: BLS) and U.S. West (NYSE: USW) seek long-distance approvals in their regions as well.
The voice revenues the Baby Bells will get are insubstantial next to what they'll lose if they can't succeed in the long-distance game. Why? Long-distance is not only key to offering bundled services -- it's the best way to keep long-distance carriers like WorldCom and AT&T (NYSE: T) and competitive local exchange carriers like Winstar Communications (Nasdaq: WCII) from taking control of their turf.
Therefore, it's well worth investors' time to track the progress SBC and Bell Atlantic are making in the long-distance arena. These are the two Bells in the best position to thrive as national and perhaps even international carriers.
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