SBC Shrugs Off DSL Squeeze

SBC Communications (SBC Quote) is taking some heat from investors for cutting broadband prices, but the company's finance chief says DSL is a good weapon with which to beat cable rivals.

The San Antonio phone giant said Thursday that it would offer new customers fast Internet service over digital subscriber lines, or DSL, for $14.95 a month. The move to bring high-speed prices below those for standard dial-up service offerings sparked fears that a ruthless price battle was starting.

The Bells -- SBC, Verizon (VZ Quote) and BellSouth (BLS Quote) -- were handed a big setback last week when Texas legislators defeated a bill that would grant statewide video franchises to the telcos. That push had been a key part of the big telcos' hotly anticipated triple-play voice, video and TV service plans over fiber.

Now, the Bells' fiber plans are stuck on a slow track in a town-by-town approvals process. Meanwhile, cable -- led by the likes of Comcast (CMCSA Quote) and Time Warner (TWX Quote) -- continues to win more phone customers with cheaper voice-over-the-Net plans. Even lower-costs outfits like Vonage, Skype and potentially Google (GOOG Quote) could soon enter the calling business. This has the Bells ever more frightful of core business erosion.

But with DSL sales already on the rise, thanks to strong demand and discounted promotional prices, some investors questioned the need for SBC to dive headlong into the broadband red ink.

In fact, during a presentation Thursday at a Lehman Brothers telecom conference in New York, SBC CFO Rick Lindner was asked why the company opted for heavy discounting.

Is this an attempt to generate more cash, kill the competition or "maim the telecom industry in aggregate?" asked Andrew Hamerling, a money manager with XI Asset Management, who says he has no positions in the stock.