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).

Evan Smith: How do you feel coming out of a legislative session in which SBC sought so much and got so little?

Edward E. Whitacre Jr.: It’s a huge disappointment. Our industry has changed. Technology has changed. We have so many more competitors—cable companies are providing telephone service big-time. And they’re not regulated [by the state]. Nobody tells them every move to make. They don’t report to anybody. I don’t think it’s right to continue to be as regulated as we are when our competitors are not regulated at all.

ES: Why did you fall short?

EW: I’ve asked myself that question thousands of times. There’s some inertia. It’s always easier to defeat something than it is to pass it. And we have worthy adversaries who don’t want to change things. I don’t think they played unfair, but it’s frustrating. We’re on the logical side of this. If you asked the average person on the street, he would agree with us that less regulation is good for the state.

ES: You also asked the Legislature to let you provide video service over your existing wires, which would have put you in competition with those same cable companies. What would the practical effect have been for the average Texan?

EW: More choice. And that would be good, because I’ve been a cable company customer, and I’ve seen my bill go up 5, 6, 7 percent every February. They have no competition, and I don’t think that’s right. While they, in turn, compete against us. They’ve really got the best of both worlds: They’ve got a monopoly, and they’re in our business with no regulation.

ES: Let’s talk about SBC’s merger with AT&T. What’s the rationale of combining the companies?

EW: We’re buying a business that does something totally different than we do. They don’t do what we do, and we don’t do what they do. For instance, we don’t have our own national network. Remember, we just got into our last state, like, two and a half years ago. So we’ve had to lease a network. That’s an asset we oughta have. AT&T has one. Second, we don’t have any voice-over IP capabilities [using the Internet to transmit your voice as you would data]. AT&T has them. We can utilize their platform. And third, we’re not having much success getting into big businesses, and they have a pretty good base of large customers. So there’s an additional source of revenue.

ES: I understand why the merger is good for SBC. But how will my life as an SBC customer be affected?

EW: We’ll finally have a global network. That’s good for our customers because we’ll be able to do more things and do them quicker. We can be more innovative. Maybe we can get customers a better deal—you know, technology at a lower price. It’ll be good all around.

ES: The kind of people who worry about these big mergers—

EW: Have nothing else to do.

ES: Well, the people who have nothing else to do often worry that in the combination of two big companies such as SBC and AT&T, there’s inevitably less competition.

EW: The worry is that we’re going to put the Bell system back together. You hear that a lot. Anybody who says that is just not informed. First of all, the cable companies who are in this business, with broadband networks and long distance and so on, are as big as we are. Also, many of our customers have moved to wireless. We have Cingular, but in Austin alone there are six of our competitors—the T-Mobiles, the Sprints, the Verizons of the world. That’s taking away more and more of our fixed-line business, so we have strong competition for our traditional customers. And there are two hundred smaller companies that provide niche-type products. So there’s going to be less competition after the merger? People aren’t looking at the facts. They’re not looking at the way the world has changed.

ES: I’m curious about the mechanics of the merger to the extent you can talk about them, because I realize they’re not all lined out yet. The combined company will continue to be called SBC?

EW: We really haven’t made that decision, but we have a lot of research going on. SBC is not well known internationally. SBC is certainly not known on the East Coast.

ES: Whereas AT&T is pretty much a global brand. An enterprising reporter might infer from that answer that the combined company could be called AT&T.

EW: Right. Or you might see another possibility—something powered by something else. Intel’s used that pretty well.

ES: The two brands would continue to be visible.

EW: Right.

ES: The headquarters of this company will remain in San Antonio?

EW: You bet.

ES: Remind me why the company relocated from St. Louis to San Antonio twelve years ago.

EW: This is where most of our market was. We were sitting up there in Missouri, which was 16 percent of our business. Texas at that time was 60 percent.

ES: Texas represents what percentage of the business now?

EW: Probably a third.

ES: Is Texas a good place to do business?

EW: It’s not a good place for us to pass legislation, is it?

ES: What about the tax situation?

EW: It’s not great. We’re the biggest taxpayer in the state.

ES: Although it’s said that not having a state income tax is a plus, because you can more easily recruit employees to come to Texas.

EW: Our property taxes probably more than make up for a state income tax.

ES: Will you continue to run the company?

EW: I hope so. I’d like to be a chairman for a while.

ES: When will all of this shake out?

EW: By the end of the year. It takes a lot of approvals: thirty-something states, the European Union, the Justice Department, the FCC. But it’s rolling along. We’ve gotten several foreign country approvals already and about half of the

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