Don't believe the ads: SBC is scion of socialism
By RICHARD BURK

TO hear SBC tell it, competition in local telecommunications has become a bad experiment in outdated socialism, a straightjacket on the Bell telephone companies who, for years, have honored the American ethos and done the hard lifting to build a modern telecommunications infrastructure on which we all depend.

Its new ad campaign, and that of its trade association -- the U.S. Telephone Association, or USTA -- strikes this message with deeply patriotic undertones. "For almost 100 years" one ad begins with a nostalgically musical score reminiscent of the national anthem, our own Bell monopolies "built" our telecom networks, brought not just "innovation," "jobs" and "a deep commitment to customer service."

The future of this great American story, the ad then tells us, lies with "state and federal regulators [who] face the new challenge" of allowing these companies to pioneer a bold new future.

SBC's ads provide the coda. One such ad contrasts its own glorious and industrious past to that of its competitors, who, according to the ad's pitch, are parasites, "free-riding" on telecom networks built by the mother ship, SBC. To boot, nameless government bureaucrats (read Bolsheviks) are giving SBC's competitors access to its networks at wholesale rates that are beneath their costs. All this because of the folly of the 1996 Telecom Act (which SBC supported, but I divert).

"How un-American!" is the implied echo that we are supposed to hear. It's a tremendous narrative, bordering almost on sentimental. The only problem is, that in peddling the story line, SBC has become like the Wizard of Oz behind the curtain -- representing itself as something that it is not.

SBC, in fact, never built these great networks in the first place. Nor did it, or its predecessors, do hard lifting that is normally required to create such an achievement: raising the private risk capital and stepping into the breach of a marketplace that brings no guarantees, where success depends on skill.

The immutable historical truth is that these massive networks, you see, were literally given to SBC by the federal government in 1984. The investments it made to keep them working since then pale in comparison to the government's welfare that made them in the first place.

The American telephone system is, indeed, one of the great achievements of the federal government. Building on inventions by Italian inventor Antonio Meucci in 1849 and German science teacher Phillip Reis in 1860, Alexander Graham Bell pioneered the great telephonic breakthrough in 1875, leading to one of humankind's most revolutionary changes in communications and culture ever. But neither Bell nor anyone else, for that matter, in the latter part of the 19th century possessed the financial wherewithal to finance the construction of a massive network that would go curbside to every household.

As a result, the federal government had to step in to get the job done. But the federal government also didn't have the necessary cash to dish up, either. It did have some creativity, however. It figured out how to get us, the ratepayers, to pony up.

For nearly 100 years, the federal government oversaw the construction of this project by promising the old Ma Bell that consumers would finance the construction through government-set rates, which would ensure its profitability. The feds sweetened the pot by providing further subsidies financed through user taxes, and by precluding other would-be competitors from getting into the business.

To the government's credit, the system worked for as long as it lasted, and telephone lines reach nearly every household and business. But President Reagan's prescient head of the antitrust division at the Department of Justice, Bill Baxter, realized in 1982, however, that such a government-created and -financed monopoly had run its due course, and was prospectively stifling future growth of the industry by precluding competitors and innovators from the marketplace. He was lauded by Republicans and Democrats alike.

Baxter successfully split up Ma Bell, creating seven regional monopolies that later conflated into four large ones, and, in essence, three major long-distance carriers. The present value of SBC's network grant is worth hundreds of billions. The several billion dollars of capital expenditures SBC expended in the past decade represents only a small fraction of the total beneficence of the federal government.

The 1996 act was intended to complete the goal of competition initiated by Baxter. It allows the Bell monopolies to lease at 70 percent discounts the long-distance services that now have declined more than 60 percent since 1984. It also, reciprocally, required the Bells to open up their local facilities -- facilities they did not build -- to competitors at wholesale rates so consumers could reap some of the dividends of their 100-year investment.

SBC and the Bells profit handsomely on wholesale provisioning, a point made by every state regulatory commission and by the U.S. Supreme Court last May. Every time SBC has been asked to provide evidence that it loses money through wholesale provisioning, it declines to get specific with auditors. In the meantime, SBC's intransigence to obeying the law -- evidenced by more than $1 billion in fines -- is allowing it to win an ignoble war of attrition against its competitors. The strategy has left it 90 percent of the market and rates of return as high as 42 percent in a depressed telecom market.

So when one studies the record, one finds, in fact, SBC is today the ultimate scion of socialism, a poster child for a massive government giveaway nearly unparalleled in our nation's history. It's taking credit for the lionized past is like a draft dodger asking for a purple heart. It is SBC who continues to suck off a publicly funded network, and it who now seeks government help to hoard something it never built.

Burk is chief executive officer of NII Communications, which serves 300 Texas communities including Houston.