Business Lobby Death Match

SBC and AT&T duke it out at the Texas Capitol

There’s something perversely entertaining about watching a political lobbying contest between two massive corporations bent on annihilating each other. It’s a bit like indulging in a Jerry Bruckheimer film—a terrible waste of money and manipulation, but one hell of a spectacle. This session, the biggest heavyweight-business bout in the Texas Legislature features telecommunications conglomerates SBC (formerly Southwestern Bell) and AT&T. They fight to control the industry’s greatest prize—high-speed Internet service, commonly called broadband.

While most people, including many a legislator, tune out at the mere mention of broadband deregulation, it’s almost a death match for SBC and AT&T. Billions of dollars are at stake here—no one knows precisely how much, at least they’re not saying publicly. But SBC and AT&T—with profits and share prices tumbling—have targeted high-speed Internet service as the savior that will lift them off the bottom of an ailing economy.

SBC has the advantage in the Texas market because it built and owns the local network of broadband lines. It doesn’t want to share them anymore. The 1996 Telecommunications Act and a 1995 state deregulation law forced SBC to open those broadband lines to AT&T, and any other companies that want access, at extremely low rates. So SBC’s game plan this session is for Texas lawmakers to boot AT&T and friends off SBC’s broadband lines. That would give SBC’s high-speed Internet service (known as DSL) de facto dominance over other telecoms and guarantee the company a bundle of cash.

AT&T, hardly a presence at the Lege the past 15 years, is desperate to avoid exile from Texas’ high-speed market, and has ratcheted up its political spending and lobbying to match SBC, the recent high roller of Texas politics. It’s not clear exactly how much money the two sides are spending (full records won’t be released until after the session), but a good guess is between $10 million and $15 million each. The two companies are going all out in this high-stakes struggle. Beyond the standard lobbying arts, each side is trying everything from slick television and newspaper ads to generous gifts to the favorite charities of legislators.

The ringside bell rang in early February when Sen. Ken Armbrister (D-Victoria) filed SB 377, long-expected legislation that would free SBC from sharing broadband lines. According to SBC, the measure will simply allow the company to build new broadband lines without having to share that investment with competitors. As an added bonus, SBC promises to bring its DSL service to untouched swaths of rural Texas. SBC also claims the bill will let it challenge the real competition on broadband—cable companies. It points out that cable’s broadband offerings, such as Time Warner’s Roadrunner service, have an advantage because they aren’t forced to share lines with competitors. All SBC wants, it says, is a fair chance to compete with cable.

AT&T also makes the “open marketplace” argument, saying it wants to keep the status quo and preserve fair competition for DSL service. MCI, Consumers Union and AARP have rallied to AT&T’s cause. They argue that granting SBC free reign over broadband lines will eliminate competition for DSL and wallop consumers with unchecked prices and fees. Several smaller telecoms will probably go under if SB 377 passes, critics predict.

Both arguments hold merit, industry lobbyists say, effectively canceling each other out. Telecom regulation is so complex that most legislators will never understand it, and neither will most of the public. Each side tosses around arguments about “free marketplaces” and “fair competition” in advertisements and daily newspaper stories. But the fate of SB 377 hinges on which massive conglomerate executes the soundest lobbying strategy by spending the most money wisely, and forging the right political alliances. SBC has mastered this formula, molding a political machine that spends more money, gives more gifts and befriends more legislators than any other company. Accordingly, SBC pushed through favorable deregulation bills in 1995, 1997, 1999, and, to a somewhat lesser extent, in 2001—a remarkable winning streak in legislative politics. While AT&T, with its vast resources, can match SBC’s spending, insiders say, SBC’s haymaker remains its local influence, with employees and economic impact all over the state. It’s that local edge that makes this session’s bloodiest and most expensive industry battle SBC’s to lose.

The first step in any lobbying war is to open the vault. As with most other business ventures, spending the most money doesn’t guarantee a successful lobbying campaign, but it’s a good start. No one has lavished money on the Lege like SBC. It starts with campaign contributions, though that’s only a small part of SBC’s efforts. The company dumped $135,000 into campaign coffers in the last election cycle, according to filings with the Texas Ethics Commission (TEC). Of course, it’s important to give that money to the right people. SBC initially bet everything on John Sharp, giving his campaign for Lite Guv $10,000 in October. After the election, SBC did a quick about-face, contributing $30,000 to the David Dewhurst Committee in early December.

That investment may have paid off when Dewhurst announced committee assignments a month later. The Business and Commerce committee, where SB 377 was referred, could scarcely be more pro-SBC. The committee features SBC’s four most ardent supporters in Armbrister; Kim Brimer (R-Fort Worth); Mike Jackson (R-Pasadena); and Leticia Van de Putte (D-San Antonio), who authored 1999’s dereg bill and is known in some circles as the “Senator from SBC.” First-term Sen. Craig Estes (R-Wichita Falls) is another likely ally, as is committee chairman Troy Fraser (R-Horseshoe Bay), though scuttlebutt around the Capitol has it that SBC, in a rare misstep, upset members of Fraser’s staff by not showing them a draft version of SB 377 soon enough. Most insiders agree that the committee, and probably the full Senate, will approve SB 377.

SBC didn’t fare as well in the House, despite a $10,000 donation to new Speaker Tom Craddick (R-Midland) on Dec. 12, 2002. Craddick chose to siphon a Regulated Industries Committee from State Affairs and filled it with reps not necessarily loyal to SBC. The committee includes Steve Wolens (D-Dallas), who has fought SBC in the past and is already on the record in opposition to any broadband measure this session. Wolens, insiders say, scares the bejeezus out of SBC because he’s sharp, articulate on the floor, and one of the few members who grasps the intricacies of telecom regulation. Another wildcard is Sylvester Turner (D-Houston), also a member of Regulated Industries. The importance of Turner and Wolens is clear in campaign finance filings. SBC gave Wolens more than $5,000 in 2002 and Turner another $1,000. The rest of the Regulated Industries Committee consists of unknown commodities for telecoms, including Chair Phil King (R-Weatherford). Michael Jewell, AT&T’s vice president for government affairs for Texas, seemed optimistic about winning over the new chairman after a recent meeting. “He told me he’s definitely on a learning curve,” he said. “From my perspective, that’s great. I’ll take someone who has an open mind as a friend.” Industry insider thinking has it that the House Regulated Industries Committee will be AT&T’s best chance for killing the bill.

For its part, AT&T contributed $222,000 to various campaigns in 2002, nearly $100,000 more than SBC, according to TEC records, a clear indication of AT&T’s renewed interest in the Lege. Gov. Rick Perry was by far the biggest beneficiary, receiving $140,000 from AT&T in early September. That makes sense, industry insiders say, since AT&T has long supported Perry and members of his staff. SBC, by contrast, gave Perry’s campaign a mere $10,000. In addition, AT&T forked over $25,000 to the Republican Legislative Caucus and another $2,500 to Craddick’s campaign fund, perhaps one of the reasons the House committee makeup is friendlier to AT&T than the Senate’s. AT&T’s relationship with Perry also raises the specter of a veto of SB 377. When asked if the governor was for or against the bill, press secretary Kathy Walt said, “It’s an interesting proposition and we’re going to be keeping our eye on it.”

In addition to a close bond with Perry, AT&T has tried to tie its fortunes to the rise of Republican power in the House, several industry lobbyists said. It supported upstart Republicans against House incumbents, breaking the so-called Pete Laney rule of Texas politics. “AT&T took a lot of hits for things they did politically that now look brilliant,” said an industry lobbyist. AT&T supported Republican Martha Wong’s ouster of Democratic incumbent Debra Danburg in Harris County’s District 134, and Rick Hardcastle’s win over Democrat David Counts in District 68. AT&T also backed Republican Jack Stick in the Austin area, Amarillo Republican David Swinford, and Mike (Tuffy) Hamilton (R-Mauriceville). That support no doubt engendered warm feelings for AT&T in the House leadership and could open new doors for anti-SBC alliances. “The changes we’ve seen in the House and Senate is an opportunity for us to make our case to a lot of people who have not been lobbied by SBC for years,” Jewell said.

But as much as AT&T would like to claim the Republican mantle and accuse SBC of getting into bed with Democrats, the reality is both sides gave huge sums to both parties. This issue, insiders say, cuts across party lines. For example, AT&T also contributed funds to Democrats Wolens ($1,500) and Turner ($1,000). It’s worth noting that Turner and Wolens were among the few non-leadership candidates to which both SBC and AT&T contributed. While Wolens has made his position clear, Turner is more of a “wild card,” said one industry lobbyist. “He’s always been OK with SBC, but he’s got a little different agenda than he’s had in past sessions.” That, of course, is a reference to Turner’s support of Craddick’s bid for speaker. Turner said in early February he’d heard good arguments on both sides but hadn’t made a decision yet. “I’m open,” he said. “But it’s certainly an issue that could be punted to the next session.”

That echoes one of AT&T’s chief arguments—essentially, do nothing and put broadband off until 2005, when the utility regulatory code is scheduled for Sunset review. The “do nothing” line won’t show up in any AT&T commercials, but it’s likely a powerful argument behind closed doors with legislators, who have rarely met an issue they couldn’t put off, especially with tough topics like the budget deficit and insurance reform dominating the session. One lobbyist put the AT&T side this way, “I don’t think they’ll want to dish up a second helping of pain. What it comes down to is if they have the stomach to fight another telecom battle after the pain of the budget.”

Sen. Armbrister responds that putting off action would be a mistake because the Sunset process won’t be complete and implemented until 2007. It’s no accident Armbrister, who represents a rural district, filed SB 377 as opposed to SBC’s more urban Senate allies. Armbrister makes the ideal sponsor to forward SBC’s arguments that deregulating broadband will help bring high-speed internet to rural areas. Armbrister said as much when asked why the legislation is necessary, “If you represent a lot of rural Texans, you’re interested in Bell building out.”

Falling revenue and rising layoffs in recent months have prevented SBC from expanding its network as Armbrister would like. The one area the company continues to increase despite the telecom slump is its lobbying team, the most extensive and well-paid such group in the Capitol. A search of the TEC database turns up nearly 40 lobbyists under contract with SBC for 2003, though that list is woefully incomplete. A more accurate measure comes from the 2001 session in which Southwestern Bell spent a session-high $7 million on 175 lobby contracts, according to Texans for Public Justice. That’s nearly one lobbyist for every member of the legislature. AT&T, by contrast, spent $1.1 million on just 28 lobbyists in 2001. AT&T got what it paid for: not much.

But this session AT&T has redoubled its efforts and mounted a lobbying team that rivals SBC’s for clout. It starts with lobbyist-extraordinaire Buddy Jones, who is AT&T’s point man. Jones, no stranger to high-stakes special-interest battles, counts among his clients General Motors, Microsoft, Intel, Continental Airlines and the Texas Bankers Association. He not only knows the Capitol game all too well, but his back-slapping, good-old-boy Texan demeanor makes him a good choice for a company based in New Jersey. AT&T has also retained state-senator-turned-lobbyist David Sibley, who was instrumental in passing SBC’s 1999 deregulation bill. “That was a good hire for them,” said Rep. Robert Puente (D-San Antonio). Sibley not only knows the issues well, but has friends all over the Capitol. Two former Sibley staffers now work for Dewhurst, including Sibley’s former chief of staff. In addition, Kip Averitt (R-Waco), vice chair of the Senate’s Business and Commerce committee, is a Sibley protégé, and insiders expect him to be AT&T’s likeliest ally among the pro-SBC committee. Said one industry lobbyist, “Sibley could neutralize some people that other couldn’t.”

While AT&T has opened its checkbook to match SBC dollar for dollar, money isn’t always everything in legislative politics, shocking as that may seem. Despite spending millions, AT&T can’t duplicate SBC’s true power source in the Lege: its local influence. SBC employs more than 40,000 workers around the state and has a presence in nearly every district. More than the highly paid lobbyists or the slickest spin artists, the most effective lobbying often comes from union workers and citizens calling a legislator from the member’s district to support a bill and testify to concrete economic gains for their area. SBC will surely employ a lot of this close-to-home lobbying on SB 377, emphasizing the potential economic benefits, particularly for rural areas.

As if calls from the local phone guys weren’t enough, SBC cleverly uses other methods to emphasize to legislators that “what’s good for Bell is good for Texas.” The company invests heavily in the local economy. A search of filings with the Public Utilities Commission of Texas for 2001, the last year for which records are available, reveals a telling snapshot of SBC’s political activities. The company paid more than $1.6 million in dues in 2001 to various organizations, including $50,000 to the Dallas Chamber of Commerce, $63,000 to the San Antonio Economic Development Foundation, and $70,000 to the Fort Worth Chamber. SBC handed out an additional $982,000 in “business gifts,” which included payments to virtually every major university in the state. That’s in addition to the $8.4 million it spent on “legislative matters expenses,” and the $25.4 million for “representation before government expenses.” At the start of this legislative session, SBC helped bankroll a conference by the powerful Republican
think tank, Texas Public Policy Prio
ities, which claims to provide the “intellectual ammunition” for the Republican leadership. Industry insiders estimate SBC donated $100,000 for the four-day policy gathering.

Another of SBC’s political hammers has been charitable donations ($2.7 million worth in 2001, according to PUC records). Representative Puente remembers asking SBC to help fund a San Antonio high school’s Mariachi band several years ago, which the company immediately did. “They’re very responsive,” he said. “If I call SBC and tell them a little league organization needs new baseball bats, it’ll pay off. We’re reminded in many ways that they’re a local company and how many people they employ.” While supporting a member’s favorite charity doesn’t guarantee votes, it certainly makes legislators more responsive to SBC’s arguments, especially the idea that helping SBC will help a legislator’s district. “It’s so much more sophisticated than a direct influence,” said another industry lobbyist. “Everyone spends money. It’s mutually assured destruction. So the question becomes what else can you do and what’s in the best economic interests of the state.”

The problem for AT&T remains that no matter how much money it shells out, it can never be as local as SBC. That’s partially why the “do-nothing” argument could be so effective—it supplies members a cover story for not siding with SBC, but not openly voting against it, either. AT&T hopes a recent Federal Communications Commission ruling on telecom policy aids its do-nothing argument as well. In late February, the FCC handed down a murky decision that allows companies like SBC to refuse competitors low-cost access to broadband lines but not to its voice network. AT&T supporters argue this FCC ruling precludes the need for SB 377—the federal government has already deregulated broadband, they say, making state action repetitive. But many analysts believe it will fall to each state to decipher and implement the ruling. SBC contends state lawmakers still must clarify Texas telecom policy, irrespective of the feds’ approach.

AT&T lobbyists and several industry insiders suspect SBC isn’t completely honest about the intent of SB 377. They say SBC will continue pushing the bill despite the FCC ruling because the measure aims to deregulate a lot more than just broadband. Critics contend that while SB 377 appears a harmless-looking two paragraph act, it contains language—sometimes ambiguous, sometimes contradictory—that’s an end run around current regulatory code. The bill, critics say, is not only an attempt to boot AT&T and others off SBC’s entire local network, including all broadband and local phone services, but also to prevent the Public Utilities Commission of Texas from regulating SBC. Several industry lobbyists contend SB 377 represents an unusually ambitious piece of deregulation, even for SBC. “It’s downright ingenius,” said one industry lobbyist. “They found an elegant way to draft this where it looks like it doesn’t do a lot. It’s almost impossible for a legislator to read it and see what it does.”

While those all might be powerful arguments for AT&T, most Capitol insiders still believe SBC will find a way to get what it wants. One industry lobbyist conceded AT&T has put forth a good-faith effort, but sighed, “I’ve just seen win so many times.” It seems in this scrap, as in any good Bruckheimer movie, the ending may be predictable, but the ride should be plenty of fun.

Dave Mann is a former editor of the Observer.

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Published at 12:00 am CST