Phone Giants Let the Fur Fly

It's an angry advertising campaign that brands local phone giant SBC Communications Inc. (SBC ) as heartless. In newspapers and on TV, the ads, sponsored by an industry group called Voices for Choices, depict SBC as a wolf in sheep's clothing--one that laid off 11,000 workers one day and bragged to Wall Street the next about its huge profits. The ads suggest that SBC cares less about customers and workers than its bottom line. SBC is "pulling the wool over your eyes," the ads say.

Maybe so. But Voices for Choices isn't what it appears to be, either. Far from its grass-roots sound, the organization is a Washington-based lobbying group funded by AT&T, WorldCom Inc., and other Bell rivals. The organization is pumping more than $2.5 million into ads that run in SBC's home states, including Michigan and California. "I don't think there has ever been an example of this type of corporate trashing," says SBC President and former Al Gore campaign manager William M. Daley. But his company is responding in kind: In a nearly $5 million campaign, SBC attacks "mudslingers" who "hide behind a lot of different names."

Why the ad battle royal now? Federal regulators, as well as those in SBC states--Texas, Michigan, Illinois, and California--are weighing rules that will set the prices competitors must pay to access local network lines and switches. The phone companies are hoping that a groundswell of public opinion will pull regulators their way. At stake: SBC's push into long-distance service, and opportunities for AT&T (T ), WorldCom, and others to offer immediate competition in the local residential markets, long dominated by the Bells.

This is no trifling matter. The brawl is over the nation's 180 million customers. SBC, far more than the other Bells, complains that selling rivals cheap access to its local networks threatens its existence. "Any business that sells below its cost on its core product for long enough doesn't make it," says SBC Chief Executive Edward E. Whitacre Jr. Nonsense, declare AT&T officials. They say that SBC bends figures to make its plight appear dire. "It doesn't take a genius to figure out [SBC's] claims of costs are phony," says James W. Cicconi, AT&T's general counsel.

Either way, research has shown that barrages of negative ads often backfire with consumers. And few believe that state or federal regulators pay much attention to the ad war on the airwaves. "Do the ads move the regulators here?" asks Laura A. Chappelle, chair of the Michigan Public Service Commission. "Not in the minutest bit." But until the telecom wars are won, SBC and AT&T won't stop trying.

By Roger O. Crockett in Chicago

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