SBC Communications Inc., the largest local telephone company in the nation, plans to announce Monday that it will spend about $6 billion over the next three years to deliver high-speed Internet access to more than 77 million people from Los Angeles to Chicago, according to industry sources.
The move heralds a dramatic acceleration in the race to bring consumers an all-in-one package of services including local and long-distance telephone connections, electronic shopping, interactive gaming and video conferencing.
SBC officials declined to comment, though they confirmed the company has scheduled a "major announcement" for Monday morning in New York.
SBC's push into the high-speed Internet world--"broadband" in industry parlance--amounts to a major step in its evolution from a regional telephone company into a modern communications giant offering a broad array of services. Analysts say its latest move should spur rivals such as AT&T Corp. and other Baby Bells to move faster with their own broadband plans, offering consumers more choices.
"More competition means faster roll-out," said Larry Marcus, an analyst with Deutsche Bank Alex Brown in San Francisco. "It introduces fear as a motivator."
Two years ago, SBC absorbed Pacific Bell, taking control of most of California's local telephone markets. This month, the Federal Communications Commission blessed the company's acquisition of Ameritech, a local telephone giant centered in the Midwest, handing control of nearly a third of the nation's local telephone lines to a single company.
Consumer advocates have reacted to SBC's burgeoning size with dismay, accusing federal regulators of allowing the company to grow big enough to stifle competition. But the FCC, led by Chairman William E. Kennard, has sought to use SBC's acquisitions as a vehicle to wring concessions from the company--concessions the agency portrays as a boon for competition.
As a condition for FCC approval of the Ameritech merger, SBC agreed to compete in 30 local markets outside its core area over the next 30 months or hand over $40 million for every city it misses. Kennard trumpeted that concession as a key to the deal. He added that the resulting company would spur the delivery of high-speed Internet access by intensifying competition in that arena.
The most interested spectator to SBC's plans may be AT&T, which has staked its future on selling broadband over cable television wires. The company has been grabbing cable franchises around the country in the hopes of using the wires to sell high-speed Internet access along with local and long-distance phone service.
But the key impediment to rolling out service on a mass scale is the need to upgrade cable systems to handle the traffic, through the addition of "cable modems," devices that allow cable wires to carry computer data. SBC, by contrast, is relying on technology known as digital subscriber lines, or DSL, regular copper phone lines that carry huge chunks of data more than 25 times faster than a regular dial-up connection.
But DSL is limited by a critical piece of physics: It only works provided the customer sits within 18,000 feet of a central telephone office, which holds the switches required to route phone traffic. According to Omar Melo, an analyst with Banc of America Securities, only 65 percent of American phones sit within the required 18,000 feet.
SBC's dollars will be sunk into digging up streets across great swaths of America and laying fiber-optic cable. That would expand the range of DSL because fiber moves data much faster than copper.
SBC's announcement has been anticipated for weeks. Computer data transmission is one of the fastest-growing segments of the telecommunications market. Though analysts have praised SBC's success in gaining direct entry into more homes and businesses than any rival through control of local phone lines, they have seen broadband as a crucial weakness in the company's offerings.
In an interview nearly two weeks ago, the day the Ameritech merger was approved, SBC chief executive Edward Whitacre Jr. said the company would soon make a broadband announcement, though he declined to offer details.
"We're going to force some people off the fence," he said.
In a research report, Goldman Sachs & Co. analyst Frank J. Governali said SBC's new commitment positions the company to share in a growth market, while fending off rivals as local telephone competition grows.
Governali wrote: "An accelerated broadband plan serves both an offensive and defensive purpose that is crucial to telco strategies."
CAPTION: SBC's Edward Whitacre Jr. says an announcement is pending.