TELECOM Digest OnLine - Sorted: Katrina and BellSouth

Katrina and BellSouth

Reinhardt Krause (
Thu, 29 Sep 2005 14:31:22 -0500

Katrina Packed A Powerful Punch: Too Much For Any Phone System


Hurricanes, even a Katrina, eventually blow over.

BellSouth (BLS) has a lot of work to do to recover from Katrina. The
Atlanta-based phone company also faces long-term challenges that are
here to stay. One is the rise of Internet-based phone services called
voice over Internet protocol, or VoIP. Another is wireless
competition, even though BellSouth owns 40% of the nation's No. 1
wireless carrier, Cingular, while SBC owns the rest. Wireless growth
reduces the need for wirelines, which can be more profitable.

And BellSouth risks being dominated by the two bigger local Bells. SBC
(SBC) is buying AT&T (T)and Verizon (VZ) is buying MCI. (MCIP) Those
deals are expected to close soon.

BellSouth Chief Executive Duane Ackerman recently spoke with IBD about
all that's on his busy plate nowadays. Here are some excerpts from
that interview:

IBD: How well-prepared is the telecom industry to handle a national
emergency such as Katrina?

Ackerman: I don't know of a hardened architecture capable of
withstanding a Category 4 or Cat 5 hurricane. There's going to be
structural damage.

Those are tornadic-force winds. That's going to twist towers,
break bridges, knock down highways, put the lights out and damage

I don't think we can build an expectation in the public's mind
that somehow that (damage) is not supposed to happen. That would be
dangerous. We shouldn't expect that there'll be no infrastructure
(damage). We've got to do the best we can to prepare and recover.

Being in the Southeast, there's a great deal of preparation we
always undertake. Last year we had four hurricanes. This year Katrina
hit us twice, in Florida as a Category 1 and then again as a Cat 4 on
the Gulf Coast. Year after year, we're involved in (natural disasters).

I've been in this business 42 years. There's been something like
53 hurricanes that have hit the Southeast during that time. What's
important is the ability to recover networks as fast as you can.

IBD: Some BellSouth executives have talked about using a rebuilt
New Orleans as a showcase for new technology. What's the business case
for doing that?

Ackerman: Everyone says (the city is) going to be rebuilt and I
certainly wouldn't argue with that. I think whatever they do, and the
way they do it, and the sequence in which they do it, is going to have
an impact on our engineering.

If you look at the network switching fabric, when Betsy hit New
Orleans in '65, we had water but not to the extent of this time
around. We learned from that. All of our switching fabric (this time)
was on the second floor (of buildings) or higher. The switching fabric
is in good shape; it's dry. From a switching point of view, the
network looks recoverable. (Switches are devices used to route voice
and data traffic.)

Then, there are our interoffice links. We lost some 17% to 20%
of interoffice facilities. But we believe that, too, is recoverable.

If you look at the central business district of New Orleans, the
French Quarter, a large part of Jefferson Parish, and the Garden
District, a lot of it is in pretty good shape.

But a lot of the city has been underwater. Will we replace
everything in New Orleans? No. We'll fix what is fixable.

In some cases, where the outside plant (wiring) is damaged or
not recoverable, then surely our facility of choice would be fiber
(optics, which transmits much faster than normal copper phone wiring).

We will be looking at it from an economic point-of-view. When we
do put in new (equipment), how can we further our agenda as it relates
to building a broadband platform. It has to be done pragmatically and
reasonably -- and it will be.

IBD: Does eBay's (EBAY) purchase of Internet phone service
provider Skype say anything about the long-term threat VoIP poses to
phone companies?

Ackerman: My sense of VoIP today is that I don't think the
stand-alone VoIP provider -- and by that I mean the nonfacilities-based
VoIP provider (companies such as Skype and Vonage that don't own DSL
or cable modem broadband lines) -- is (going to destroy) the landline
phone business.

I think there are places where VoIP can help the eBay, Yahoo,
(YHOO) Google (GOOG) search business.

The cable companies are different because they have landline
facilities. They're able to add it to their video package. When I look
at competition, the first and most effective competitor I see is
wireless. Second, I would say cable with VoIP. I would put
stand-alone VoIP providers today at a fairly distant third.

IBD: How will the competitive landscape change for BellSouth
after SBC buys AT&T and Verizon buys MCI?

Ackerman: I think about that. When I sit down today for a
competitive bid, or RFP (request for proposals), from a business user,
we have SBC at the table, Sprint's there, AT&T, BellSouth is there,
MCI, and usually one of the third-party integrators. I suspect that at
least two of those players won't be there the next time we sit down.

We've been competing against AT&T and MCI for a long time in our
territory. I believe they carry the specialized talents that address
the high end of the market. I wouldn't expect that to change.

Will we see more competition? I don't think so. We'll continue
to bring what we have to offer to the table.

Large businesses in our territory represents about 8% or 9% of
our revenue. The high-high end of (the business market) is probably
another half of that. We don't control (have) those accounts
today. But we provide services to many of the state governments,
hospitals, regional banks. There are portions of the market where
we're well-positioned.

IBD: Some analysts say that SBC's acquisition of AT&T will
create a business conflict with BellSouth. They say SBC will try to
sell Cingular's wireless services along with AT&T's products to
business customers in BellSouth's region. Are you concerned about

Ackerman: Let's talk about the wireless joint venture. Cingular
is a big business. It has 53 million customers. If it were a
stand-alone business, it would probably be in the Fortune 30, Fortune
35. That's too big a business for me to let fail. Given that scale,
it's too big for SBC to want to fail.

We're committed to making sure it succeeds. The governance of
Cingular is 50-50. What we (SBC and BellSouth) have to say about how
it's run is equal. We both have a significant interest in seeing to it
that Cingular continues to grow and improve its margins.

I don't see anything that would create an environment where we
would let Cingular fail. That's not going to happen. Will there be
conflicts at the enterprise (corporate) table? There are conflicts
there today. SBC has been in our territory a couple a years now
(competing for business customers). So has Verizon. In some cases, we
work with other carriers or partner with them, depending on the
customer. I think the industry is mature enough to realize there are
places where you compete, and you compete like crazy, and there are
places where it makes sense to partner. You do what makes sense and
you don't go around getting mad.

IBD: Lawmakers in Congress are introducing new telecom
legislation. It's unclear what will pass or when. What would
BellSouth like to see in telecom reform?

Ackerman: We'd like to see less regulation. When I look at where
we'd like to go -- whether it's video franchises or any aspect of this
business -- if it doesn't need to be regulated, forbear. We've got
cable out there competing. We've got the VoIP providers in this
game. We've got all kinds of competition. We're losing (customer)
lines to competition. Why in the world do we need to continue all
these rules and regulations?

Will it get done in 2006? I don't know. Based on what I've seen
(in proposed bills), we've got a lot of work to do.

IBD: There's plenty of talk about wireless broadband. BellSouth
has some radio spectrum it could use for that. What are your plans?

Ackerman: We're testing a version of wireless broadband in
Athens, Ga. We're going to test it in a few more places, mostly
rural, where you may not have (DSL, the phone companies' wireline
broadband) available.

I'm inclined to believe that if the costs are right, we could
get a very effective (wireless broadband) capability in areas that
don't have other forms of broadband.

Whether it'll compete effectively with a DSL, a cable-modem
(broadband) product or fiber connectivity is less clear to me. We'll
have to see how the technology does in the marketplace in these tests.

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