Regulators Deal SBC a Setback on Long Distance

Its stock has slid in recent months, and the Justice ruling may doom the firm's long-distance plans.
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The nation's largest local phone company will remain a local phone company a little longer following a setback Monday at the hands of the

Justice Department

.

In a nonbinding recommendation, Justice ruled

SBC Communications'

(SBC)

bid to provide long-distance phone service in Texas didn't meet legal requirements. SBC officials didn't immediately return calls seeking comment, but an analyst saw the move as a setback for the stock.

The recommendation, which the

Federal Communications Commission

will consider, dealt a blow to the company, which had been telling analysts it expected to get into the interstate toll-calling business in April. A Justice Department report said SBC wasn't allowing competitors unfettered access to its local network, which would permit those rivals to offer local calling and high-speed digital-subscriber-line service.

"This is bad news for SBC," says

Banc of America Securities

analyst Rex Mitchell, who has a buy on SBC. "And it casts serious doubts that they'll get in by April. ... If they iron out a few things, they might make it this year." (Banc of America has no banking ties to SBC.)

Mitchell says he won't revise his 2000 revenue expectations for SBC, but he expects the Texas long-distance approval to boost the stock by a point or so. SBC was up fractionally Monday at 40 7/8, valuing the phone concern at around $139 billion. The stock has fallen substantially over the last six months from a 52-week high near 60 over concerns that price cutting will slow earnings and revenue growth.

The FCC has until April 9 to make a final decision, and observers say it is unlikely the agency will grant SBC approval over Justice's objections.

The FCC has received six petitions for long-distance service and approved only one:

Bell Atlantic

(BEL)

, which was granted agency approval in December to provide long-distance service in New York. The approval was expected to provide a template for other states. But as analysts pointed out, the FCC was under extreme political pressure to grant its first long-distance blessing, more than three years after federal laws were enacted to stimulate greater competition.

Under the

1996 Telecommunications Act

, SBC and the other Bell companies created in the 1984 breakup of

AT&T

(T) - Get Report

cannot offer long distance within their local regions until they open their dominant networks to competitors.

The law requires that SBC give competitors access to parts of its network, ranging from the copper wires that connect customers' homes and businesses to computer databases used for entering new orders.