SBC's Paul Mancini |
There also are competitive local carriers, which serve about 20 million lines wholly or partially over their own facilities. And we're seeing new technologies that increasingly are displacing traditional wireline voice service as a means of communicating: BlackBerries, mobile phones, dial-up Internet access, broadband Internet connections, and more. Cable modems are the dominant broadband technology with a greater than two-thirds market share. With cable, competitive local carriers, satellite and wireless carriers, today's communications marketplace is growing more competitive all the time. According to the FCC, when you consider all the subscribers to the various modes of communications available today (including landline, cable and wireless providers), RBOCs such as BellSouth, Qwest, SBC and Verizon have about half the market. And that market share is shrinking daily.
Contrary to what some have claimed, the RBOCs have played an extraordinary role in moving competition along. SBC alone has spent billions of dollars to open its network to competition and hundreds of millions of dollars to create systems that our competitors can use to electronically access our networks and take our customers. We also have 6,000 employees fully dedicated to providing wholesale services to those same competitors. I can't think of any other industry in history where companies have made those kinds of investments to assist their competitors to take their customers.
This investment has made it possible for hundreds of competitors to offer service in SBC territory. Those competitors collectively serve more than 12 million lines in SBC territory alone.
SBC welcomes this competition. We believe that a truly competitive market will force all companies to be at their best and will thereby create a rising tide that lifts all boats. We also have no problem reselling our services. Given the increasing array of technologies by which consumers can communicate, it is in our interest to develop a viable wholesale business to complement retail services.
But I must emphasize the word "viable." In the name of fostering competition, many states have opted simply to create the appearance of competition by setting wholesale rates for UNE-P upwards of 40, 50 or 60 percent below what it costs us to provide those services.
This isn't real competition, nor is it facilities-based competition. Real competition is a process that spurs and rewards innovation and efficiency. Here, in contrast, companies simply avail themselves of steep discounts mandated by regulators and then re-label our service as their own. They put nothing back into the system -- no investment in the local phone network or infrastructure. No employees to maintain or repair the local network. Nothing but a sales team. Worse, they are cherry-picking the market by pursuing only high-end, profitable customers, leaving the average or low-income customer out in the cold when it comes to competition. Essentially, companies like SBC are being forced to subsidize their competitors and lower-usage customers are subsidizing higher income and more profitable customers.
Many things can happen if you are forced to sell a product for less than cost. And none of them is good. You cut investment in the network and reduce jobs, which we've done. You start conserving capital, which we've done. And you slow down your deployment of new products and services, which we've done.
In all fairness, the wholesale pricing and UNE-P situation was not the sole contributor to the industry's woes. But they were a big factor.
The tragedy of the FCC's recent Triennial Review ruling is that it missed a unique and once in a decade opportunity to spur the kind of investment and true competition this industry needs to get back on its feet again.
The ruling will be challenged. We are confident it will be overturned by the courts, not just because it is bad policy, but because it doesn't follow the law. But this will take time and resources to work through; time and resources that could be better used to get this industry back on its feet again.
Meanwhile, attention will turn to the states, since the FCC basically punted the competition and unbundling rules to them.
This will potentially lead to a scenario where the industry will have to confront 50 different sets of rules, and more uncertainty. We hope that the states (and the FCC) will realize the threat to the industry and to consumers that has been created by this below-cost wholesale pricing scheme. And we hope that they will move to transition the industry to something that is more economically rational.
The one bright spot in the Triennial Review ruling is the decision with respect to new, broadband infrastructure. There, the FCC appears to have recognized how forced unbundling can stifle investment. There, the FCC appears to have recognized the value of and need for clear and coherent national rules.
But while the FCC appears to have given the industry a green light to invest and deploy broadband, they may have taken away the gas needed to fuel that investment. The FCC's failure to reform rules under which we are effectively subsidizing the cherry-picking of our best telecommunications customers by our UNE-P competitors puts incredible pressure on every part of the RBOCs. Without question, this irrational system affects our ability to invest, which is something we badly want to do.
I hope this gives you a sense not only of our frustration, but also of what is at stake. We have a great network, we have great employees, we have a solid financial history and want to invest in broadband. We know it's the future. We also recognize that we now operate in a competitive world and that we will face financial pressures as a result. But we are caught in a conundrum because we are faced with synthetic competition created by regulators, and this undermines our ability to meet the investment challenges of real broadband competition. This is still a great and critical industry with equally great potential. We can get through these times if we keep the long-term needs of consumers and the country at the forefront. I'm hopeful we can work together to bring consumers all the benefits the broadband world promises.
This is a game where everyone can be winners -- consumers and the industry alike.
Paul Mancini is vice president and assistant general counsel with SBC Communications. He can be reached at pm9476@sbc.com.
