Copyright 2004 Knight Ridder/Tribune News Service

Knight Ridder/Tribune News Service

The Dallas Morning News

November 12, 2004, Friday

Dallas — With competitors breathing down its neck, SBC Communications Inc. said Thursday it will build its fiber-optics network to serve residential customers cheaper and faster than it earlier had projected.

"We recognize that it's really important to reach out to customers really quick," said Lea Ann Champion, an SBC senior executive vice president.

Officials with the San Antonio-based giant said it expects to spend $4 billion to build its fiber-optic network to bring high-speed communications to residential neighborhoods through 2007. That's at the lower end of the $4 billion to $6 billion range it had previously outlined.

In addition, it expects to reach about 18 million households — about half of its present base of potential customers — by the end of 2007.

Champion declined to detail when service will begin in specific areas.

Ernie Carey, SBC vice president-network, said the company is already conducting field trials and expects to begin offering voice and data services through the fiber-optic system in first quarter 2005. Video service will be offered to the first customers in fourth quarter 2005, he indicated.

SBC previously had announced its plans to build a fiber network that put the more reliable and higher-capacity lines near neighborhoods, where traditional copper lines will make the final connection.

The system would bring a variety of internet-based services, including data, voice service, video and other products into homes on the same line. Today, SBC offers video service through EchoStar Communications Inc.'s DISH network and its digital subscriber lines lag cable modems in both speed and customers.

Major cable companies are in a race to provide their bundle of services to residential customers faster than SBC and other traditional landline telephone companies. Time Warner Inc. has said it expects to offer phone service to cable customers in all of its markets by year's end, and Comcast Corp. has said it will upgrade to do so for half its network by the end of 2004 and nearly all in 2005.

The cable companies may be in a better position since it's easier to add phone service to their network than it is to add video service to a telephone system. SBC is using a video technology that is more versatile than traditional cable television, but it's also untested, said Will Power, an analyst at Robert W. Baird in Dallas.

"It is an ambitious strategy in that they are going to cover 18 million households inside three years," he said. "But there are still a lot of unanswered questions."

SBC executives outlined a strategy Thursday to focus on its best potential customers, with less attention given to potential customers who aren't expected to subscribe to a lot of services.

Champion said it expects "high-value customers" — those who will pay $160 to $200 a month for video, voice and data services — to make up 25 percent of its customers, but 34 percent of its revenues.

While it expects to reach half of its potential customers by the end of three years, SBC officials said the company plans to be serving 90 percent of its high-value customers and 70 percent of its medium-value customers — those who might spend $110 to $160 a month.

By contrast, it probably will reach only 5 percent of its potential low-value customers by the end of 2007.

(Vikas Bajaj contributed to this report.)

(c) 2004, The Dallas Morning News.