The power of the Big Bells is rooted in their control of the physical infrastructure of local telecommunications. Basically, they own the wires that connect the vast majority of households and businesses to the network, and they own the switches and trunk lines that support most services. The two biggest wireless phone companies are Bells; they're also the biggest providers of the high-speed access services known as DSL, as well as the biggest providers of business lines. According to the FCC, the Bell companies have more than 140 million consumer lines installed in this country for residential customers and small businesses. The CLECs have 8 million. In nearly half of the ZIP codes in this country, there are no competitive local phone carriers to even compete with the Bell giants.
All of this is a cruel surprise to many in the business. As recently as two years ago, Bill Schrader, CEO of Internet networking company PSINet, dismissed the Bells as "dinosaur carcasses." Now Schrader and his company are about to join countless other fledgling networking and phone providers in bankruptcy court. In order to compete with the Bells, the CLECs had to start from scratch and build their own networks - taking on billions in debt to do so. When the CLECs failed to steal customers, the debt proved crushing.
It was also just two years ago that Dhruv Khanna, executive VP at broadband company Covad, said, "I don't think the Bells are committed to or interested in DSL, or they would've taken the bull by the horns by now." Today, the Big Bells have effectively driven every major competitor except Covad out of the picture and are poised to control 90 percent of the high-speed digital subscriber lines in the country.
SBC has an ambitious plan to turn DSL into much more than just a fat Internet connection. The idea is to build a system that ensures no consumer is more than 12,000 feet, or about 2 miles, from a building where the DSL equipment is kept. This way, the company can guarantee everyone gets at least VCR-quality video on their PC.
"We will be able to make all sorts of content available through the Net that people would never go to the phone company for," says Jason Few, SBC's vice president of DSL. "We will be able to stream a DVD-quality movie to your home. Will we be Disney? No. But we will definitely not be just a phone company."
If consumers provide the opportunity, business clients offer the jackpot. SBC and its Bell cousins plan a complete range of phone, data and Internet services. SBC claims its customers spend only 10 percent to 15 percent of their communications budgets on services with SBC. The rest goes mostly to long-distance carriers like AT&T, which can provide long-distance phone and data connectivity like Internet access.
