SBC Into Broadband, Pronto (Fool Plate Special) October 18, 1999

An Investment Opinion

SBC Into Broadband, Pronto

By Dave Marino-Nachison (TMF Braden)
October 18, 1999

In a much-awaited move many believe will add even more heat to the competition in the broadband Internet access industry, leading local telephone services company SBC Communications (NYSE: SBC) announced plans to launch "Project Pronto," a three-year, $6 billion play to provide high-speed services in 13 states.

With SBC just closing its over-$80-billion acquisition of phone company Ameritech, it now has enviable access to U.S. markets. And that access will surely expand as the company must follow through on government requirements prompting it to enter 30 more markets over the next 30 months, or pay heavy penalties.

SBC expects to have no trouble getting into the new markets, which it said represent 180 million people and a $40 billion opportunity. But traditional telephone services are considered passe when compared to the expected growth in demand for Internet access, particularly high-speed service either by cable or, as in SBC's case, digital subscriber line (DSL) technology. Cable and DSL humble dial-up access with their speed, and Investors were waiting impatiently for SBC to get on board.

The company plans to spend its billions on fiber optic cable, electronics, and asynchronous transfer mode (ATM) equipment. (Drivers, look for your roads to get torn up as SBC lays new wires.)

A nice bonus for SBC is that the fiber optic equipment helps its network run more efficiently and reliably, with considerable cost savings expected. The company reportedly said to look for annual savings of $1.5 billion -- on top of $3.5 billion in new revenue -- by 2004.

Someone must supply SBC with the aforementioned equipment; look for one or more of the major telecom equipment suppliers to pick up big-dollar contracts as a result of Pronto. Unsurprisingly, analysts mentioned the likes of Lucent Technologies (NYSE: LU), Cisco Systems (Nasdaq: CSCO), Alcatel (NYSE: ALA), and others in reports.

And the corporate world's penchant for "strategic partnerships" moved quickly to co-opt the SBC news. Online brokerage E*Trade (Nasdaq: EGRP), for example, fired off a release denoting its plans to offer a souped-up, co-branded Internet access service to its "Power E*Trade" customers, who get extra services and better rates in exchange for making more trades.

Also standing to gain are consumers, who will likely get to sit back as other companies -- their respective Baby Bells, for instance, or national players such as cable aficionado AT&T (NYSE: T) -- respond to SBC's announcement by ramping up their own broadband deployment efforts, particularly in markets SBC enters as a result of Ameritech-related FCC legislation.

Related Links:
SBC Web Site
SBC Message Board