Telco CEOs take no prisoners

Call them the Pac Men of the telecommunications business.

In a once sluggish industry, WorldCom chief executive Bernard Ebbers and SBC Communications CEO Edward Whitacre are gobbling up telcos faster than anybody. Through their dealmaking, they are taking on giants such as AT&T, MCI Communications, and Sprint.

Whitacre struck again with yesterday's $62 billion buyout of Ameritech. The deal marks his second acquisition of a Baby Bell in as many years. In April 1996, he led the buyout of Pacific Telesis for nearly $24 billion--the first merger of a Baby Bell since the break-up of AT&T in 1984.

For his part, Ebbers is trying to digest MCI in a $38 billion combination. The move comes on the heels of a string of buyouts since 1997, including those of MFS Communications and Internet access provider UUNet.

Whitacre's SBC specializes in the local phone business, while Ebbers's WorldCom is a long distance provider. But thanks to deregulation and new technologies, their businesses are coming together. Both executives want to provide "one-stop" shops for local and long distance calls, as well as Internet access.

The two executives' aggressive approaches stand out in an industry that long has been characterized as bureaucratic, unimaginative, and stodgy. Their "Pac Man" buyout strategies are fraught with risk, and integrating the companies they buy out is highly painful for the rank and file of the firms that are taken over. Their dealmaking also is drawing fire from consumer groups and regulators. Nevertheless, Ebbers and Whitacre are helping to reshape an industry that touches nearly every consumer.

"There are a lot of similarities between Ebbers and Whitacre," said P. Gabriel Crasto, an analyst at CBIC Oppenheimer. "They are both strong, no-nonsense leaders driven by performance."

Added Ed Mullane, an analyst with New Japan Securities International: "Both are immensely aggressive."

In the button-down world of telco executives, both are "country boys"--with roots in the rural South--who don't mind unorthodox tactics. For example, Whitacre began negotiating the buyout of Pac Tel with that company's executives in March 1996 at an airplane hangar in Phoenix, Arizona--a decidedly secret location.

Whitacre, 56, joined SBC 33 years ago and has been climbing up the corporate ladder ever since.

SBC CEO Ed Whitacre (left) and Ameritech CEO Richard Notebaert. AP photo

He worked in operations in Arkansas, Kansas, and Texas--SBC territory--and later served as group vice president, vice president of public affairs, and chief financial officer. He became the company's chief executive in 1964. A native of Ennis, Texas, Whitacre graduated from Texas Tech University.

Ebbers, 55, is not a diehard "Bellhead," a term used to describe lifelong telco executives. In 1983, the former high school coach and hotelier worked out the details of starting a long distance phone company at a coffee shop in Hattiesburg, Mississippi. Their discussion came in the aftermath of the court-ordered breakup of AT&T.

They came up with the name LDDS (short for "long distance discount service," a name suggested by a waitress). The company began by reselling AT&T long distance service to small and midsized businesses. Since then, LDDS has made dozens of acquisitions and changed its name to WorldCom.

The company's biggest deal is its pending buyout of MCI, the nation's second-largest long distance phone service provider.

Like Whitacre, Ebbers is hard-charging. Late last year, he stepped into the middle of a pending merger between MCI and British Telecom and offered to make a new deal. GTE entered the bidding, too, but Ebbers won out. Regulatory filings detail a highly persistent CEO. He's publicity-shy, however--there is no photo of him in the company's annual report.

Both Whitacre and Ebbers receive high marks from analysts in integrating the companies that they acquire. But such accolades do not come without pain. Many Pac Tel executives and workers, for example, left after that telco's merger, citing a culture clash between the two companies.

"This wasn't a real merger; it was an acquisition," said one former Pac Tel worker. "There was no doubt after the deal closed who was in charge."

Consumer groups and regulators worry that SBC and WorldCom will become too powerful, resulting in a reduction of consumer choice and price increases. The executives deny that.

Their dealmaking is likely to continue. "Both companies recognize that they want to be international players, and I would not rule out more expansion plans," Crasto said.