The Baby Bell buys a stake in Williams Communications for a foothold in the company's national fiber optic network.
The investment is designed to let SBC compete eventually on a head-to-head basis with long distance giants such as AT&T and MCI WorldCom.
Although SBC executives spoke optimistically today of offering new packages of local, long distance, wireless, and Internet services, federal law still bars the company from offering its customers long distance service.
"We won't be able to make full use of the network until we get long distance relief," said SBC chief executive Edward Whitacre in a conference call. "But we want to have all our assets in place."
Under the terms of today's deal, SBC will buy up to ten percent of Williams' shares in the company's upcoming IPO, which is scheduled for the second quarter of this year. The Baby Bell's initial investment will be about $500 million, the company said.
In the short term, Williams will sell SBC access to its network for local, data, and Internet products. Once SBC wins the ability to offer long distance service--a federal approval process that likely will stretch out into 2000 or 2001 in some of its service areas--the company plans to bundle all of these services for customers.
Whitacre said that the company would eventually offer consumer long distance, local, wireless, and Internet service at a flat rate.
The move continues the trend of telecommunications consolidations and strategic alliances that have dominated industry news for the last year.
SBC's own plans include its merger with fellow Baby Bell Ameritech, a deal that still awaits approval by state and federal regulators. Company executives have said they would begin offering local service around the country after the approval of that deal, beginning in Boston, Seattle, and Miami.
The merger, which has been strongly opposed by consumer groups and industry rivals, will give the new SBC control over about a third of the local phone lines in the United States.
But it is the company's move toward long distance service, and deals like today's arrangement with Williams, that will finally give SBC and the other Bells their coveted national presence.
The integration of Williams' services will take some time, both from the technical and sales end, but will eventually help shoot SBC's business toward this goal, analysts said.
"Once they get their [long distance] approval it's going to be gangbusters," said Daniel Ernst, director of the Strategis Group's competitive telephony division. "The Bells will be the best positioned in this market. They will truly have end-to-end networks."
Williams Communications, a division of natural gas distributor Williams, is one of the handful of long-distance newcomers that have draped the United States in tens of thousands of miles of fiber optic cable in recent years.
But to date, it and other companies such as Qwest and Level 3 have been more successful in laying the networks than in bringing traffic to fill their pipes.
That's where SBC and other traditional phone companies come in.
"[Williams] has all these assets, but really they have no customers," said Abhi Chaki, a senior telecommunications analyst at Jupiter Communications. "It's all about teaming up with companies like SBC who can bring customers to the table."