SBC & BellSouth: Will the new ‘Ma Bell’ eat its young?

USAToday has an excellent article on what appears to be the looming demise of BellSouth and — surprise! — it doesn’t have anything to do with the LUS fiber project!

No, the likely source of BellSouth’s disappearance will be its current partner in Cingular, SBC (which will, upon completion of its buyout of AT&T, assume the name AT&T).

Seems like SBC has had its eye on BellSouth for a while and there was even talk of a merger last year. When BellSouth CEO Duane Ackerman balked at a merger, SBC moved on AT&T. With completion of that merger nothing but a matter of making some meaningless promises to the FCC, SBC has announced that it will take AT&T as its corporate name.

The, according to the article, have to deal with the issue of what to do with BellSouth. The need to focus on this relationship grows directly out of the Cingular partnership. SBC has already made it clear that it believes unified ownership of Cingular would make for better management of the company. Uh, that means BellSouth (which depends on Cingular for 40 percent of its revenue!) will either take a back seat, sellout or get bought up.

The article also makes clear that BellSouth’s corporate mindset is leaving it in the dust of its now largesiblingsgs:

BellSouth’s larger problem, analysts say, is its think-small strategy.

Based in Atlanta, BellSouth sat out the merger dance of the 1990s. As a result, it still serves the same nine states that it did in 1984 when the AT&T phone monopoly was broken up by court decree. Back then, BellSouth was the largest of the Bells. Today it is among the smallest, with about $28 billion in revenue in 2004.

By year’s end, SBC — an amalgam of Southwestern Bell, Pacific Telesis and Ameritech — will dominate the western USA. Verizon — a combination of Bell Atlantic, Nynex and GTE — will dominate the East. Once the AT&T deal closes, SBC will become the USA’s largest telecom, with about $110 billion in annual revenue. Verizon, with $90 billion in annual revenue, will become No. 2.

With AT&T and MCI in their pockets, SBC and Verizon will instantly gain the ability to reach all 50 states. They’ll also be able to court business customers, touting global services that BellSouth can’t easily offer and aggressive prices it may not be able to match profitably. Over time, they are likely to go after residential customers as well.

Cable companies also are taking aim. Comcast, Time Warner and other cable operators are rapidly adding VoIP — Voice over Internet Protocol — to their service bundles. By 2008, some analysts predict there will be more than 40 million VoIP subscribers. The assault is one reason the big carriers are losing about 5% of their basic phone subscribers each year. Those losses are expected to accelerate over time.

Phone companies, eager to blunt their losses, are returning fire by adding video to their lineups.

Once the competitive rumble gets going, BellSouth will quickly feel the heat, says Jan Dawson, an analyst for Ovum in Boston. “BellSouth’s profit margins will be squeezed and squeezed and squeezed until there is potentially nothing left,” he says.

It says later in the article that one of BellSouth’s problems is its emphasis on short-term performance. This has made the company reluctant to invest in new technologies (fiber!) that larger phone companies and cable companies have embraced.

The result is that the end game for BellSouth is underway. It likely will come to some conclusion around the time CEO Ackerman retires in about two years.

That will be about the same time that LUS starts taking customers on line with their new fiber to the premises system.

Anyone know where bets can be placed on what the name of the local incumbent phone carrier will be here in Lafayette when the LUS system is lighted?

“LUS: Bonds suit filed too late”

The Advocate has published an excellent article on the lawsuits filed by BellSouth and allies against the bond issue that is to fund LUS’ fiber-optic telecom division. The first paragraph provides a succinct overview:

BellSouth’s lawsuit seeking to block funding for Lafayette Utilities System’s planned telecommunications was filed too late and under the wrong statutory authority, city-parish attorneys alleged Monday in a filing in state district court.

The same is true of a similar class-action suit filed by private individuals.

Now the details are a little weird, especially as to timing: the filing of the lawsuits were both more than 60 days out from the the passage of the bond issue. There are two statutes being discussed as possible bases for a lawsuit: one which is specific to a bond issuance following an election with a 60 day limit and one that is more generically about bonds and it has a 30 day limit. BellSouth et al. filed under the generic lawsuit with a 30 day limit, so being 60+ days out is really late. It’s also weird that they’d file under the generic rather than the specific law. It’s basic legal principle that the more tightly targeted law controls if it applies to the situation. Both flaws tempt dismissal and that’s hard to explain.

Assuming that BellSouth’s lawyers are competent, leaving yourself open to such obvious challenges seems odd and I find it unaccountable. Looking at it from the outside there is one scenario under which filing under a generic instead of specific law and filing late in any case makes sense: if the real purpose of the lawsuit is not win but to generate the grounds for the maximum amount of delay.

Consider the disadvantages of doing it right: You present a clear case properly filed and you win or lose. It’s over. If you win this is a good thing, right? Sure…if you win. But that is assuming you expect to win. The record on the bond is that BellSouth and allies have lost before the people (almost 2-1), they lost before City-Parish Council (whose ordinance they are challenging), and they lost on the interpretation of bond-related issues in PSC (who sided with LUS on the interpretation of the issue at stake in these lawsuits) It doesn’t looks so good for BellSouth’s lawyers. At this point in the law the weight of corporate jurisprudence is all on the side of bond holders and bondholder security is allowed to override even illegal issuance of bonds. Appeals are swift and the bonds could likely be sold while under appeal since you’ve lost on substance. Once sold you’ve lost state law and even constitutional clauses so favor the bondholder and the legal basis on which the bondholder bought the bonds being stable that you can’t successfully fight. You’ve lost. Finally. And pretty quickly.

On the other hand consider the disadvantages of doing it wrong: If you get dismissed for using the wrong law and for being late you can appeal. NO problemo. You appeal. Maybe twice. It takes time. You argue that, hey, this is procedural and you try for a stay on the substantial question (issuing the bonds) so that you can deal with the procedural objections raised by LUS. It takes at least as much time as in the doing it right scenario above. Or maybe the city’s objections get handled in the court and are only part of a finding against BellSouth. More grounds for appeal.

All of the errors make a lot more sense if you think that BellSouth and its allies don’t think they can win…but do still hope to engage LUS in endless and expensive delay. And are willing to misuse the forum offered by the court to obfuscate and delay.

Not honest or ethical? No but these guys just aren’t known for worrying about that stuff.