Edward E. Whitacre Jr.
The 63-year-old chairman and CEO of SBC Communications on merging with AT&T, landlines versus cell phones, and the evils of regulation (imagine that).
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So what do you do about the market of the future?
You offer broadband, because these people want broadband, or you get into the wireless business, as we are. On the other hand, I’ve seen several articles in which people have talked about going back to landlines because cell phones aren’t as reliable. Landlines aren’t going away.
Is there a price point issue with landlines that you need to consider, so it remains a relevant option for some of these people?
We’re already there. In Texas, for nine or ten bucks a month, you can get a landline. It’s a bargain. That’s not even the price of a pizza. And it works 24 hours a day, 365 days a year.
Is the technology on cell phones ever going to be—
It will never be as good.
And for that reason, you don’t worry about the impact of wireless on your landline business.
People like wireless because of the convenience. Thousands of minutes and free long distance and you can call anywhere in the world? That’s unbelievable convenience. And it’s good service. It’s pretty reliable these days, and it’s gotten a lot better. A lot more towers have been built. But if you want it to be perfect, you’re going to have to have a tower every three hundred feet in this country. It takes a lot of investment to make this stuff work. People tend to forget that.
You’ve been doing this for a long time. You went to work for this company, what, forty years ago?
1963.
Could you have ever imagined at any point the amount of change that you now have to manage?
No, I couldn’t have imagined. I still can’t imagine.
Why did you get in the business to begin with?
I needed a job. I’d worked here one summer as a student engineer, which meant I went out and drove stakes in the ground where poles were supposed to be put—stuff like that. I liked it a lot.
Did you think at that point that you might want to run the company someday?
No, I never really thought about that. I figured I’d probably spend my career in what was once called the plant department and is now called the network—the technical side of the business. It has to do with cables and wire and switching machines and that sort of thing. That’s where I spent my first twenty years.
I’m thinking about another company head who came from the technical side: Gordon Bethune, the former CEO of Continental. He wasn’t one of these guys who ran a cereal company before running an airline. He had been a mechanic. He really knew the guts of the business. You too, apparently.
I don’t have much experience in accounting, but I know the infrastructure pretty well. That’s been incredibly helpful to me over the years.
Do you spend a lot of time these days trying to get up to speed on the new technology?
Yeah, I do. I think I know how it works. At least I can comprehend it.
It’s safe to say that you can program a VCR.
I can. I can also put songs on an iPod. And I can send e-mail. I could program a computer at one time, but no more.
Did anybody in your family do anything remotely like this?
No. My dad was a locomotive engineer for Southern Pacific; he worked there for almost fifty years before he died.
A company man.
Yeah. He and all his brothers and his daddy worked for the railroad.
Did you have any interest in doing that yourself?
No, not really. I’d been around it all my life. I didn’t dislike it, and I don’t. I’m on the Burlington Northern board, and I like it a lot. But my daddy, in particular, didn’t want me to do that. He thought I could do something else and maybe come out better. My mother certainly didn’t want me to do it, so it just worked out.
What are you going to do next?
When you look ahead five years, where do you want the company to be? Where does your focus have to be? We have to have size and scale, because it’s such a capital-intensive business. We have to be right on the cutting edge of technology; I want this company to serve all its customers in the telecommunications business and serve them well. By that I mean video, broadband, wireless, local long distance, Internet, whatever you want to talk about. From then on, it’s about execution. We have to execute well for employees, customers, and investors.
Any hurdles to get over?
There have always been hurdles. There have been hurdles for 42 years. Today, the particular hurdles relate to regulation. I’m not saying there shouldn’t be any regulation, because there should be regulation to protect consumers. But you shouldn’t tell a company what to charge or what products to put out or how you can conduct yourself in business when your opponents, who are bigger than you are, don’t have that.
Just to be sure I understand this: How will the world that SBC serves be made better by SBC going unregulated or going less regulated?
Well, I think we can’t compete. We’re very limited in what we can do in terms of investment because we’re unsure of how regulators will react. Let me give you maybe the classic example. In 1996 the FCC declared that for competition to start in this particularly expensive area of our business, we had to sell our competitors our network at below our cost. So they would come and rent the line from me and go sell it to you, using my infrastructure, and they’d sell it cheaper than I could sell it. They had no funding costs! They could just hire a marketing company, answer the phone, put your phone in, and start collecting money and pay me—for illustrative purposes—ten bucks a month and charge twenty. It was like GM selling a car to Ford at below their cost, and Ford puts Ford’s name on it and sells it. Didn’t have any overhead, didn’t have any workforce, didn’t have any anything. We were forced to do that, and we lost literally millions of customers to that very flawed scheme. Well, all of a sudden we look around and say, “Why should we be spending any money in this business? Because the government’s just going to take it away from us.” The deal was supposed to be, this would give them a jump start and then they would go build their own infrastructure and begin to use it. But guess what? They didn’t.
Why would they? They’re getting a better deal from you.
They’re getting a hell of a deal.
This is the question I have: Would the rest of us be getting a hell of a deal if that regulation was lifted? I get how SBC benefits in not having to give its infrastructure to its competitors at below cost, but how do individual customers benefit?
Who’s going to bring you new services? Who’s going to bring you innovations out there? Who’s going to package this stuff? Who’s going to do all this stuff if we don’t do it?
But would there be a price consequence to customers, up or down, if regulations were lifted?
Prices would probably go down.
Because?
Because you’d be able to do things that you can’t now do. I mean, voice-over IP—you could put that out there big-time. The Internet’s not taxed, while we’re taxed to beat hell, and we pass that on to our customers. With voice-over IP, that tax goes away unless Congress decides to tax the Internet. You’d have an instant price reduction of 15 to 20 percent.
But I bet Congress is going to look around and go, “Hmmm. The Internet’s not taxed. The phone company is using it. You know what we oughta do? Tax the Internet!”
Congress has passed several resolutions saying, “We’re not going to tax the Internet because we’ll stifle innovation.” There may even be a law to that effect. But none of this matters if we don’t do broadband. Am I going to do it if I have to share it with my competitor? Hell no. So that’s the dilemma we face.
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