SBC Communications Inc. plans to build a new fiber optic network at a cost of $4 billion to $6 billion over the next five years, the company said on Tuesday, in an effort to offer more services to compete with cable companies.
The move by SBC, the second-largest U.S. telephone company, comes as the "Baby Bells" struggle to find new markets such as on-demand video services while a host of new competitors target their traditional telephone business.
"We are not just trying to become a bigger version of our old selves," SBC Chairman and Chief Executive Ed Whitacre said in a speech to the SuperComm telecommunications trade show. "There's a limit in being a phone company, no matter how large."
He said SBC was launching its fiber optic efforts now in part because of the Bush administration's recent decision not to appeal a court ruling throwing out federal rules that forced SBC to share its local network with competitors.
Whitacre said SBC's plans depended in part on more favorable rulings from the Federal Communications Commission. The Bells have been petitioning the FCC to clarify rules about how much of their fiber-optic networks they must share with competitors.
Legg Mason analyst Michael Balhoff said SBC may be counting on savings of about $1 billion a year from the changes in federal rules to help support its spending plans.
"The SBC announcement confirms that while the Bells are aware of the keen need for network upgrades, they remain cautious regarding investment pending cash savings from regulatory rulings," Balhoff said.
The Bells have long considered fiber optic networks an ultimate weapon in their battle against cable companies and other competitors. Fiber optic cables use light to transmit data at far greater speeds than copper wires but cost more to install, and only about 70,000 U.S. homes have such connections today.
Verizon Communications Inc., the largest U.S. local phone company, has said it would spend $1 billion on laying the foundation for a fiber optic network connecting homes and businesses in nine states, with plans for video services next year. BellSouth Corp. said on Monday it would test video services within the next 12 months.
SBC said its planned network would consist of fiber connections directly to newly built homes or businesses as well as "fiber to the neighborhood," where copper wires are used for the last several hundred feet but still deliver enough network speeds for video service.
SBC said it would test a digital video service for the network with Microsoft Corp. later this year.