Meet the New TV Guy

Local phone companies are under the gun. Their traditional business -- connecting phone calls for businesses and consumers -- is in decline. Rivals such as cable companies and Internet start-ups are offering their own phone service, often at lower prices. And an increasing number of people are using only their cellphones to make calls, further crimping the business of wired calling.

But Edward E. Whitacre Jr., the chairman and chief executive of SBC Communications Inc., is undaunted. Mr. Whitacre has already reshaped the telecom industry in his 16 years atop SBC by acquiring fellow Bell companies Ameritech and Pacific Telesis. In doing so, he turned San Antonio-based SBC from a regional player into the nation's second-largest phone company. Convinced that demand for cellular service will continue to grow sharply, he recently snapped up AT&T Wireless Services for $41 billion after a heated bidding war with Vodafone Group PLC. The move made Cingular Wireless, the cellphone network that SBC owns with minority partner BellSouth Corp., the largest wireless company in the U.S.

Now Mr. Whitacre aims to transform SBC into a state-of-the-art communications and TV giant that will have a dominant presence in consumers' living rooms. He plans to challenge cable companies head-on with a full slate of video services that SBC will bundle with Internet access, wireless calling and traditional phone service -- all for about $100 a month.

Though Mr. Whitacre admits he knows little about TV programming he has given the go-ahead to roll out TV service to 18 million homes, or roughly half the homes in SBC's 13-state territory, by the end of 2007 -- by spending billions on a largely unproven fiber-optic technology. Television is a must, Mr. Whitacre insists, as cable companies continue to penetrate the phone business.

At 63, Mr. Whitacre may be getting closer to retirement as one of the longest-running American CEOs. But he made clear in a recent interview that his penchant for confrontation is hardly waning. Excerpts:

WSJ: Phone companies have been making deeper incursions into the lives of consumers with cellphones and Internet service. What does the living room of the future look like according to SBC?

Mr. Whitacre: You can be watching television, probably on a thin screen plasma screen. If you get a phone call, the number displays on the television screen, doesn't interrupt the picture -- and it will tell you who's calling. If you wish to take [the call] you can take it by pushing a button on your remote.

You can sit there and view content off of your computer -- maybe it's family pictures. Or, somebody sent you an e-mail; it will pop up on the screen while you're watching TV in the left-hand corner. If you are watching a basketball game and you would like to have an overhead view, you'd click a button and you change the camera angle. If you're interested in what everybody else is watching at that time, or maybe what's hot on TV, you can push a button and it will tell you who's watching what across the nation. That's what all the visionaries predict. I've never been much of a visionary.

WSJ: Why would consumers chose a phone company to bring television to their homes?

Mr. Whitacre: I think we do have a good, trustworthy, well-known name. We have a history of using our productivity gains not to raise rates -- but to provide better services or more services. And I think our reputation will help us a great deal there. We are already offering satellite TV service [through a partnership with EchoStar Communications Corp.] and that has been successful. In fact, we have not advertised that, because we just couldn't handle the demand.

WSJ: You are promising to somehow link TVs, phones, cellphones and the Internet through an expansion of your partnership with Yahoo Inc. announced last week. Yet such "convergence" has been talked about for over a decade. What makes you think it finally will work?

Mr. Whitacre: It's happening now because the technology is available to do it now, or getting there. It was impossible in the past. I had one of the first ones of these cellphones. It weighed 46 lbs. It was in a briefcase, with batteries, and you had to carry this thing around, almost break your arm. It's taken, I guess 12 or 13 years to get cellphones to a smaller size.

Landline and wireless are certainly melding together. More people have wireless phones, more people have broadband, they're on the Internet, they can get that at home, they can get that on the cellphone. Video is now a part of the equation.

A good example of convergence is something we have out there now called unified communications, where with one device you can get your e-mails, get your faxes, your messages -- either wireline or wireless messages -- just by calling one number. So, it's all converged.

WSJ: Prices for phone, cellphone and broadband services have been coming down. What do you think a package combining everything -- TV, Internet, home phone service, cellphone -- will end up costing?

Mr. Whitacre: Cable companies have had a pretty sweet deal. Forty or 50 bucks per month, increased 5% every February. That's a nice business model. They essentially had a monopoly on this business. We used to have a monopoly, too. But that was a long time ago now, and we know to attract customers.

As to pricing, we don't have the product, we don't know the efficiencies involved, but we've talked about everything for 100 bucks a month. That would be wireless, long distance, local service, broadband, and video. One bill -- everything. Right now, that would cost closer to $200. Of course, you have to make a profit and do well for your stockholders. And so, I don't know where that comes out, but we've talked around that $100 range.

WSJ: You're spending billions of dollars to extend fiber lines to offer TV and faster Internet service. But you're known for not having a computer in your office. Do you ever test new technologies and services yourself?

Mr. Whitacre: I'm not a real techie. I have a computer at home, but don't mess with it that often. I mean, what am I going to do with 200 e-mails a day? No, I'm really not very techie, but I can use a computer.

Believe it or not, I can even burn a CD, or I can buy a CD, take it home, and put it in my PC and then load it on my iPod. I looked last night, there's something like 514 hours of music on it. I have Ray Charles on there, I have Steely Dan, I have the music from "Priscilla, Queen of the Desert."

WSJ: Verizon Communications, another huge Bell, is laying fiber lines right to customers' homes to offer TV service, an expensive move that brings huge amounts of bandwidth, or capacity, to consumers. You're building a less-costly hybrid network that in most cases takes fiber only to the neighborhood and uses traditional, slower copper lines from there to connect to houses. Some say your approach isn't proven. Isn't that risky?

Mr. Whitacre: I think it takes some trust. It also takes some experience. And in my experience, these things have a way of being worked out technically. There's somebody smart enough to figure this out. The first iteration or first version may not work -- or even the second or third. But you eventually get there pretty quick.

WSJ: What kind of content are you planning to bring to people's TV screens? Will it be the same as cable offers?

Mr. Whitacre: The little I know about it, there really is a mass array of content that you'll be able to see. Pretty much whatever you want to look for. I think a la carte TV content is a possibility. I don't think we know yet what consumers want, we're so new into it. We just hired a top-notch guy [Dan York, a former HBO executive] to start looking at which content we should buy. He has much more knowledge about this than we do.

WSJ: Do you consider start-ups such as Skype SA and Vonage Corp., which offer cut-rate phone calling using voice-over-Internet-protocol technology (VOIP), serious competitors?

Mr. Whitacre: Companies like Vonage and Skype are laying on a voice application on broadband connections. They're getting a free ride. They're using my infrastructure and facilities -- and yet, they are paying nothing. It's a great business when you don't have any cost. I think everybody that has a voice application is a competitor to be reckoned with, you bet. So we are going to offer VOIP too. We have four trials going with 1,000 customers. We're going to start to roll this pretty big time, you know. It's certainly at the stage where it has to be reckoned with.

WSJ: Local phone companies such as SBC appear to have won a regulatory battle against long-distance rivals with rulings saying you don't have to rent them low-cost access to your local lines. Do you anticipate new regulatory fights against rivals -- perhaps cable companies -- down the road?

Mr. Whitacre: Oh, I'm sure there will be a lot of discussion and there might be a few battles. The worst thing that could happen with voice-over IP broadband would be to overregulate it, to have every state regulating it, like we did in the traditional phone world for 100 years. That would stifle it and slow it down.

WSJ: Since the Cingular partnership ties you so closely to BellSouth have you ever thought of acquiring the company?

Mr. Whitacre: We have a very good partner and I'm glad we did it. It was beneficial to both companies at the time and we had really no options. That was a quick way to get big fast. And I don't think any of us had the resources at that point in time to go buy an AT&T Wireless by ourselves or whatever, whatever the transaction might have been. And I've known Duane [Ackerman, BellSouth's CEO] for years and I think I know how he feels about this. And it's allowed us to get a lot of scale real quick.

[An acquisition of BellSouth] would make a lot of sense because then you no longer have this partnership and you wouldn't have to worry about control issues 10 years from now or whatever. But, you know, that's a very hard thing to do. I mean, my God, it would take the Justice Department, the FCC and 26 state regulators to approve this.

WSJ: You don't have a national brand. Will you need to go national down the road to better compete for business from large corporations or consumers?

Mr. Whitacre: Could be. In our enterprise business, we've already sold to some very big national clients. We're widely known among businesses. But among consumers, we're not widely known outside our 13-state region. So we may have to go national at some point. We'd probably have to wait until we get voice over IP up and running.

WSJ: As you grow in size and scope, will you ever be a monopoly again? Or a duopoly, shared with cable companies?

Mr. Whitacre: Oh, there's no way, no way. We've got wireless competition, cable companies that aren't regulated. We still are. We still have hundreds of small companies that compete with us.

Eventually, there will be more than a duopoly. There are too many niche players and they fill up a service that consumers want. The upstart phone rivals that are still in, you know, they know how to make money.

WSJ: SBC has acquired more companies than most of its peers. Do you see a need for yet more acquisitions?

Mr. Whitacre: We've added a lot to our company through acquisition. In our enterprise business, I think we're in a position, if we so choose, that we can grow organically. To get global capacity, it would be helpful to buy a company. But there are other ways to do it. And, indeed, we do it other ways through partnerships already.

We've been acquiring a lot. I guess that's not an undeserved reputation. But had we not done that, we wouldn't be here today. We would not have survived in my judgment. We were the smallest Baby Bell. At the time of divestiture [from AT&T Corp. in 1984], BellSouth was like three or four times our size.

Write to Almar Latour at almar.latour@wsj.com