Skip to main content

Blaming onerous federal pricing rules, SBC (SBC) set plans to slash spending and cut 11,000 more jobs.

The nation's second-largest local phone company said Thursday it will reduce capital spending by a quarter to about $5.5 billion next year, roughly $2 billion less than its projected 2002 outlay. The additional cuts further degrade a bleak downturn for equipment suppliers such as






, which are already reeling from steep sales declines.

examined the telecom-spending outlook earlier Thursday.

TheStreet Recommends

SBC says the 11,000 job cuts come on top of the 10,000 firings the Baby Bell has already done this year. All total, SBC looks to be cutting more than 10% of its 192,000-worker staff by early next year. Ahead of the postclose news release, SBC stock dropped 69 cents to $21.90, putting it near a 52-week low.

Going Down Swinging

In an effort to make the financial political, SBC CEO Ed Whitacre took aim at federal regulators who are forcing the dominant local telco to sell access to their networks at discounted prices. He contends that under the pricing rules SBC is selling some services for less than cost.

"When unrealistic and outmoded regulation results in our having to lay off highly trained workers and constrains our investment in our networks, it is a disservice to all local phone users in the states we serve," Whitacre said.

The Bells have resisted many of the dictates of the Telecommunications Act of 1996, which required local monopolies to open their markets to competitors in exchange for approval to sell long-distance service.

Early on, the deregulation efforts helped spawn hundreds of telcos small and large that aimed to take a piece of the local Bells' pie. The Bells

complied to some degree and also lobbied and litigated to protect their markets.

Timing: It's Everything

After various rulings and appeals, the Federal Communications Commission recently established a pricing plan for how much the Bells could charge rivals seeking to offer service on their networks. The pricing rules roughly coincide with the timing of the state-by-state approvals to allow the Bells to sell long-distance service in their regions.

San Antonio-based SBC, for example, was just given preliminary approval to offer long distance in California, the largest state in its 13-state region.

"Under this pricing scheme, a century of regulatory policy has been turned on its head," Whitacre said. "Instead of subsidizing prices for average consumers, we now subsidize competitors who in turn siphon revenues out of the market."

While SBC has seen a decline in its total local lines -- largely due to customer flight to wireless service including SBC's Cingular business and cable modem Net access -- Whitacre's claims that competitors are skimming the cream of its customer crop may be overstated. Nearly all the telcos that could be seen as a threat to the Bells have failed or are teetering.

And that, of course, is the bigger problem: As the economy remains soft and prices remain weak, it's growing increasingly difficult for anyone in the telecom industry to make money.