Sunday, November 06, 2005

The Wrong Attitude

I could not help but post another article after just posting my previous one, because it drives home my point so clearly that we should be focusing on services and content instead of the pipe.  Ed Whitacre’s comments in “Business Week” demonstrate why this country will continue to lag in broadband penetration.

Just a day or two after I finished my first draft of my previous article, Ed Whitacre, CEO of SBC Corporation, demonstrated the arrogance prevalent in the executive management of so many carriers.  Before I alienate many of my friends and colleagues in SBC and the other RBOC, there are many enlightened managers in these companies and some of the top executives get it.  I wish I could say the same for Mr. Whitacre.  I do admire how he as amassed SBC into a dominate telecommunications force when his parent company (AT&T) dwindled away due to mismanagement.  Watching it as an ex-AT&T employee broke my heart.  Also, I look forward to a new AT&T emerging from the shadows of SBC.  He needs a bit (well, maybe a ton) of enlightenment as to where the industry is now and where it is going.

Mr. Whitacre was interviewed in Business Week about AT&T and moving the new company forward.  During the interview he was asked about competitors such as Vonage, Yahoo!, Google, and Microsoft.  When asked the question, “How concerned are you about Internet upstarts like Google (GOOG), MSN, Vonage, and others?”  Mr. Whitacre responded,

“How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!”

He must think that he is the 800 pound gorilla.  The combined market capitalization of those four companies is 6 times that of SBC.  He will be in for a real battle if he wants to close his network to other content and service providers.  SBC is providing IP transport over DSL; no more, no less.  Any customer of SBC Yahoo! DSL knows that they rely solely on Yahoo! to deliver and support the content.  This is equivalent to selling a TV and saying to the customer that they can only watch a test pattern on channel 6.  SBC no longer has a monopoly on access.  A duopoly exists in most areas, and technology is enabling more access providers to set up shop.  Wi-Fi, EVDO, and WiMAX are enabling access technologies that offer customers alternatives to the oversubscribed, twisted-pair DSL lines of SBC.  There is nothing stopping Microsoft or Google from building their own networks with these technologies.  Google may even get a shot at building their own Wi-Fi network in San Francisco right in SBC’s backyard.  Shut down their access to their customers and watch how fast these true 800 pound gorillas find an alternative way to reach customers.

Furthermore, Mr. Whitacre wants to continue to regulate the industry to his company’s advantage.  That strategy may have worked in the past, but the landscape is changing and the content providers know how to work the government as well if not better.  His behavior is perfectly understandable based on his heritage, but the industry has changed.  Tom Evslin goes into detail about the mentality behind the old regime (link).  While he believes that he is operating in the best interest of SBC, he is missing the opportunity to get the company out of its earnings slump.

By continuing to focus on controlling the pipe, he is missing the chance to turn SBC/AT&T into a service and content powerhouse.  The company can leverage the network assets of SBC, Cingular, and AT&T and the world renowned brand of AT&T to package content and services to customers worldwide.  Instead he would rather wage war against Vonage or Google in Galena, Illinois.  With that prevailing attitude, he will relegate his company to the same future as AT&T.

Watch out Ed or Google just may buy SBC.  They know that the network is just an enabler and delivering content is where their growth lies.  The message is simple:  use your assets to deliver world-class services and content or face being extinct.

Tag: telecom, SBC, Whitacre