Aaron Anderson: Marty as you know, Bellsouth has just completed an internal leadership development program called Navigating Our Changing Seas, I guess that’s a company wide effort to educate the employees on the tremendous changes that are going on in our industry right now. Our conversation is going to be in the context of that rocky voyage, but I’d like, if you wouldn’t mind, to set the stage perhaps and talk about where our industry has come from, just the background on how regulatory rulings have affected it over the past 8 or 10 years.

Marty Dickens: Sure, I’d be glad to Aaron. Very briefly, if I can, you know the Bell system has been around for over 100 years. It was a government ordained monopoly up until 1984, when a consent decree with the government broke up the Bell system. But even then, it took another 12 years before the communications act in 1996 was rewritten. And the communications act had not been rewritten since 1934, no major revisions. So, in 1996, the act was rewritten. But, let me set the stage very briefly of what the situation was. You think, well that’s only eight years ago, how much could change? Well, from a pure time standpoint, that’s not a long, long time, but from a change in technology, it’s a lifetime, and the technology explosion is all around us, and it will continue to be that way. But just to set the stage a little bit about where we were in ’96, if you think about it, neither the Titans, nor the Predators were in Nashville, Garth Brooks was the biggest thing in music, not just country music, just eight years ago. The fact that on television, one of the hot shows was “The X-files”, if you think about that, that’s gone, you can see it on reruns somewhere. But, things were really different. No one had ever heard of a “dot com”. Let’s think about that just a little bit. When the act was signed into law, the word “internet”, it’s only mentioned once in the entire act. In fact, at that time in our country, there were only maybe twelve million users of what would become known as the internet, and they were basically military, research, and certain other education institutions, certain government uses, but it wasn’t being proliferated around the country. In ’96, you still got your local phone service from basically one company. Your long distance service was from three companies, AT&T, MCI, Sprint, basically. Your cell phone was still basically used, it wasn’t even called a cell phone by many people then, your mobile phone was basically used for business purposes only, nearly exclusively business purposes, and it was nearly always installed in your car, if you remember that.

Aaron Anderson: The bag phones with the . . .

Marty Dickens: Just the installed with a pedestal phone. So, those things were like that. Well, come forward to today. So much has changed. We now have over 100 companies in the state of Tennessee alone, offering telecommunications services, either from the full spectrum of services to some phase of it. The fact that you can get your services from just about anybody today is really phenomenal. Wireless phones have become indispensable as far as we are all concerned, and some folks, mainly a lot of the young folks, a lot of the college students, don’t use anything but cell phones. When they graduate and go out and get a job, they may not use anything but a cell phone, but that’s the way things have changed. But, also back at the time of this act becoming law, cable providers basically provided network television. They just provided televised programming, of course now they are into all sorts of things, including providing you internet access, and communications services. And today, a hundred and thirty three million people in our country alone have access to internet. So, you know, it has exploded around us, and it will continue to do so. And in fact, I would tell you that anyone that would say to you today “well here’s what its going to be in five years”, you should laugh, like you just did then, because they don’t really know, no one really knows. The people that are in this business all the time, and study and research it, and are helping develop the new services, and products that are coming, can’t tell you what is going to happen five years from now because technology is exploding all around us. You would not have thought in’96 that we would be where we are today. Now, with all of that change, in ’96 when the law was signed into reality, the administrative agency that’s charged with setting the policy, the telecommunications commission, went beyond the letter and intent of the law in trying to promote, establish, and ensure the success of competitors in the marketplace. The major thing they did, as far as the Bell operating company was concerned, is that they required us to sell the elements of our network to our competitors at a cost that really doesn’t cover our operating costs in order for them to have a low entry cost, and in order for them to be able to go out, and get customers. That was not the intent or the language of the law, and we appealed to the FCC at that time, but our appeals fell on deaf ears, so we went to court. Now the truth is, it’s taken a long time, we went to court at that time, and it went all the way to the Supreme Court, and the Supreme Court ruled in our favor. In fact, it said that the rules, the policies established by the FCC, were beyond the intent of the law, and they should revise it. Well, the FCC stirred those rules around a little bit, and they reissued them, and all this has taken about four years, and they issued these rules again, and they really didn’t change a lot.

Aaron Anderson: New rules under the same act?

Marty Dickens: Same act, the law has not been changed since ’96. These are the policy guidelines that came out of the law, okay? So, we went back to the court. This time, the appeal court, the Federal Appeals Court in Washington D.C., in 2001, threw it out again, saying basically “FCC, you have snubbed your nose at the Supreme Court, and you have to fix this, and you have until the end of 2002’ is basically what they said, and everything looked like it was going to change, and then right in early 2003, the FCC ruled again, and it was as bad or worse as before, and we went to court again. We are very encouraged, because just recently, the court, the Federal District Court, Appeals Court in Washington, threw out their rules one more time, a third time, saying “you must fix this”. And in fact, they gave them 60 days to fix it or their rules were vacated, there would be no rules.

Aaron Anderson: And we are in the midst of those 60 days right now?

Marty Dickens: Right now. The reason we are encouraged, the FCC, rather than just saying, “well, we’re just going to challenge this”, the FCC is attempting to honor the ruling of the court, and is encouraging the industry to come together and negotiate marketplace based, competitor based, rates, for them still to be able to buy the elements of our network, the competitors, but be able to buy them at negotiated rates, which is what we said all along. We want them to use our network, but those policies that have been in place all this time, they have never by the way been approved by a court. They have been challenged in court, the court has always found that these are not good rules. So for the last eight years we have been operating under rules that when challenged in court were found to not be within the intent or the language of the law.

Aaron Anderson: So bouncing back and forth between the FCC . . .

Marty Dickens: And it has gone on for eight years. So all of that, when you combine that with the economic woes our country has been under since 2000, the tragic events and the aftermath of 9/11, and the other elements that have gone on, when you combine all of that, the telecom sector has really been under the gun. It has cost a lot of jobs. In the Telecom sector, from the Research and Development areas, all the way to the service providers, we have lost over 600,000 employees in the Telecom sector. A lot of companies have gone out of business and things have changed and dot coms, that explosion of dot coms as we all knew, has gone away. They were vapor stocks basically, and they have gone away, some survived of course, but that environment, being in an environment where the rules were not geared to allow the marketplace to bring about the changes that you would want in a competitive marketplace, the rules were manipulated. Through that manipulation, it was felt that the FCC could promote the success of the competitors, but in effect, it has not worked. It has hurt the entire industry which in turn has hurt consumers. Yes, as we talked earlier, you have a number of choices on where you get your services from, but it is not as widespread as you want it to be. It’s because the incentive is not there for the companies like Bellsouth to invest in the technology if you are going to have to sell it at below your investment price, and there is no incentives for the competitors then, if they bought it themselves. So those policies, and operating in an environment that we have been operating under, has caused significant change in the way we operate, and how we go about doing our business. So, we’ve come a long way since ’84, then ’96, and I think we are on the threshold of finally getting the structure right that will allow even more significant and correct changes to our industry as we move forward. So, it’s been a time of turmoil and tremendous uncertainty for the industry, as we have moved through this, because it has always been in court challenges and not knowing where it was going to go, and in the meantime, driving the businesses down.