|
November 20, 2003
SBC's Chief Exec Remains Optimistic on Telecom
By Erica Grieder
“My biggest priority is to increase the value of my company on behalf of the people who’ve invested in my company, who put their trust and their money in SBC,” said Ed Whitacre, Chairman and CEO of SBC Communications, speaking on Nov. 18 at the McCombs School of Business as part of the Undergraduate Business Council’s VIP Lecture Series.
As a result of the poor economic climate of the past three years, fulfilling this promise is no slight task. The telecommunications industry has been hit particularly hard by the economic downturn: More than half a million jobs have been lost, total capital expenditures have dropped from 112 billion in 2000 to an estimated 41 billion this year, and thirty companies went bankrupt in 2002 alone.
In addition, corporate scandals such as MCI-Worldcom’s $11 billion accounting fraud and subsequent bankruptcy last year have shaken investor confidence in not just the telecom industry, but the market at large.
SBC itself—a Fortune 30 company with some 160,000 employees and a revenue stream of over $40 billion dollars—has experienced some tough times, as consumers and businesses alike cut their telecommunications spending. Over the past three years, the company has lost 6 million lines, experienced eight straight quarters of declining revenues and profits, and their stock has dropped from an all-time high of $60 to $24 a share.
Fortunately, Whitacre, who at 57 has been the CEO of SBC for 14 years, has the prudence to take a long-term view of the situation.
SBC’s strategy for dealing with the current economic situation had several facets, including paying down their debt, offering bundled services to customers, and, finally, cutting costs by cutting some 28,000 jobs, which Whitacre described as “most painful of all.”
As a result of these measures, said Whitacre, “SBC now has the strongest balance sheet in all of the telecom industry and we have less debt than anybody. Which means that when the economy turns, we should be ready to take advantage of the situation.”
The plain-spoken CEO also expressed his frustration at what he considers to be an overly stringent regulatory environment. “Companies like mine, SBC, are strapped with rules that were created for a telecom industry that looks nothing like today’s super-competitive world,” he said.
However, Whitacre said that he is not, ultimately, disheartened by the public policy, competition and poor economic climate affecting the telecom industry. “I think we’re probably through the worst of all this,” he said, “I’m fundamentally optimistic about the telecom industry, and SBC’s role in it. I think we’ve taken the right steps.”
Notable Soundbites:
On the speech:
“I’ve been looking forward to this visit for some time, and to be honest with you, it’s pretty unusual for me to be looking forward to a visit like this. On the list of Top 10 things I like about my job, public speaking comes in #12.”
On the current economic climate:
“Imagine you’re the CEO of the following company: It’s a Fortune 30 company. It has 160,000 employees. It has a 40-billion dollar plus revenue stream, it has 50 million customers. You also have 8 straight quarters of declining revenues, and as your revenues are dropping, so are your profits. Around you are financial scandals, fraud, investigations and trials that have shaken investor confidence in the economy. And then you’ve got a regulatory environment, people telling you how to run your business, and that’s contributing, in your judgment, to the industry’s downward spiral. As a result of all these conditions I’ve talked about, revenues dropping, cost, etc., your company’s stock has dropped from a high of 60 dollars to 24 dollars a share. And if that sounds like absolutely no fun, you’d be right. It is no fun. But it’s the situation that I face right now at SBC.”
On public policy:
“We are required to sell our local service to competitors, who then turn around and resell it to you. We have to wholesale it to them at a 50% discount. That’s crazy economic sense. It’s the same as General Motors making a Chevrolet and just before it comes off the line Ford is allowed to come in and put their logo on it and General Motors has to sell it to Ford for a 50% discount. But it is a way to create competition. Doesn’t make any business sense, doesn’t make any economic sense, but it is a quick way to jump-start a lot of competition.”
“We talk about, ‘The country needs investments, the country needs jobs.’ But why would I build something when I have to sell it to my competitors at below my cost? And why would my competitors invest anything when they can buy it so cheap from me. It’s not a very difficult argument. Nevertheless, that is what’s happening and that’s why you see fewer jobs and no growth.”
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
