SBC’s Lobbying Shakeup Stuns K St.

Posted February 11, 2003 at 6:47pm

Telecom giant SBC Communications Inc., facing tough times, laid off tens of thousands of its workers last year and slashed its capital spending budget by billions of dollars, unmistakable signs of the turmoil roiling the entire industry. At the same time, and with a lot less public attention, SBC shocked K Street this past Thanksgiving by terminating contracts with more than a dozen high-profile lobbying firms, ending some relationships that went back for many years.

Senior SBC officials, including Tim McKone, head of the company’s federal and Congressional affairs operations, defend the move as the right one for the company. The officials add that they do not know when, or even if, SBC will ever rehire all its old lobbyists.

This comes despite the fact that SBC is now considering a multibillion-dollar bid for the nation’s largest satellite broadcaster, DirecTV, currently owned by Hughes Electronic Corp., itself a division of General Motors Corp. SBC will clearly need help lobbying the Federal Communications Commission and the Federal Trade Commission and other agencies — as well as Congress — if the DirecTV deal actually happens, although the talks are apparently still in the exploratory phase.

“The answer to why it happened is simple,” McKone said of the lobbyist layoffs. “The telecommunications sector of the economy is the leading loser of the economy right now. … The fact that consultants were let go was not because they were ineffective or we didn’t have good consultants. It was matter of the economy and what we’re up against.”

McKone said SBC will continue to review its outlook once the 108th Congress gets rolling, but he isn’t sure if SBC — the nation’s second-largest local phone company with $43 billion in sales last year — will ever hire as many outside lobbyists again.

McKone, though, pointed out that SBC’s in-house lobbying team boasts a number of people with strong ties to Capitol Hill, including a former top aide to Sen. Conrad Burns (R-Mont.), chairman of the Commerce, Science and Transportation subcommittee on communications, as well ex-staffers for Sen. Sam Brownback (R-Kan.) and former Democratic Sen. Richard Bryan (Nev.). SBC’s in-house lobbyists have ties to Speaker Dennis Hastert (R-Ill.) and the FCC itself as well.

SBC’s most visible political heavyweight is William Daley, the company’s president. Daley was Commerce secretary under President Bill Clinton, as well as a highly respected Democratic operative.

McKone also warned that SBC will retaliate in kind for a recent ad blitz by AT&T and MCI-WorldCom. The ad campaign slams the San Antonio-based Bell company.

The “Voices for Choices” campaign has appeared in a number of markets nationwide, including California and Washington, D.C. (in the pages of Roll Call and other publications), and slams SBC for allegedly trying to stifle competition within the telecom industry.

“The media war is gross. I have never, ever seen one corporation go after after another company like this. You don’t see Pepsi go after Coke, you don’t see Wendy’s go after McDonald’s,” McKone said.

“The last thing we want to do is put these kinds of dollars in an advertising campaign when we’re in this kind of an economy,” McKone added. “But if they’re going to slander our company like they are, we have no choice but to let people know who SBC is.”

In its own ads, SBC points out that a number of MCI-WorldCom “executives are pleading guilty to fraud; here’s the company that has perpetrated the largest fraud in American corporate history.”

The SBC ads also point out that AT&T was fined $200,000 last October by New York state officials for “secretly financing a phony consumer group running ads in violation of lobbying laws.” AT&T was lobbying for greater competition within New York’s local phone market.

A spokesman for the Voices for Choices coalition returned fire at SBC and dismissed the company’s claims as phony. “Being called a slanderer by SBC is like being called ugly by a frog,” said Peter Arnold, a representative of the coalition. “Our own greatest ally in this entire campaign has been SBC’s poor record of consumer service.”

Despite its counteroffensive against AT&T and MCI-WorldCom, the changes to SBC’s Washington lobbying operation show just how tight things have gotten for a company that has traditionally been a major player on K Street.

Recent federal disclosure records show that SBC spent well more than $6 million during 2001 on both inside and outside lobbyists, and was on pace to spend a similar amount last year. SBC spent $3.2 million on lobbying between Jan. 1 and June 30, 2002.

SBC’s outside lobbyists came from 14 separate firms, and included such high-profile firms as Quinn, Gillespie & Associates; Tongour Simpson Holsclaw Lytle Parry; Romani, DeConcini & Symms; Paul, Hastings, Janofsky & Walker; and Skadden, Arps, Slate, Meagher & Flom.

When word first leaked out in November that SBC was planning to let all of its consulting contracts lapse at the end of the year, the move caught a number of Gucci Gulch residents flatfooted.

“A lot of people knew [SBC] was going to do a ‘reassessment’ of its consultant needs, but I don’t think anybody believed it was going to be anything that dramatic,” said a lobbyist whose firm was terminated by SBC. “It certainly surprised the hell out of me.”

“It was unprecedented,” added another former SBC lobbyist who requested anonymity. “In all my years in Washington, I have never seen anything like this.”

While there have been rumors that SBC may rehire some outside firms, nothing is imminent, say insiders. But that may change if any DirecTV deal moves forward.

Despite the cutbacks in their lobbying organization, SBC officials hope to remain big donors to both parties. The company’s political action committee was among the most active of any within Corporate America last cycle, handing out more than $1.4 million to dozens of GOP and Democratic candidates and incumbents.

SBC and its subsidiaries, which include Cingular Wireless and Ameritech, dished out another $1.3 million in now-banned soft money during the 2001-02 cycle, with the bulk of that total, $750,000, going to Republicans.

All the turnover, though, has had an impact on SBC’s standing on K Street, and there is speculation that McKone may jump to competitor Verizon Communications, according to several sources. McKone declined to comment on the speculation.