BellSouth comment on AT&T ann

Bellsouth Corp
24 June 2004


BellSouth Responds To AT&T Announcement on Tennessee and Louisiana Residential Marketing

For Immediate Release:

June 23, 2004

BACKGROUND: AT&T today announced that it would stop accepting certain orders from residential
customers in Tennessee, Louisiana and five other states.

The following statement may be attributed to Herschel Abbott, BellSouth vice president
governmental affairs:

- A careful reading of the AT&T press release reveals that no present customer of AT&T's will
be impacted by the announcement of their withdrawal from seven states. Given the limited
nature of the withdrawal, the markets won't even know they are gone. Today's announcement
will not affect:

- It is clear AT&T is not leaving the market. They're simply announcing that they will
compete some other way. The AT&T announcement seems to have no impact on consumers.

    They state:
    "The company stressed that it will continue to serve its existing residential customers
    in the affected states, and that its announcement today does not affect its enterprise,
    government and other small- and medium-sized business customers. It will also not affect
    customers with DSL and cable modem offerings who subscribe to the company's Voice over IP
    offering."

AT&T's announcement is not unexpected, however they have continued to try to perpetuate a
program of government subsidies. Let's consider the facts. AT&T has consistently tried to
portray itself as being the key to a competitive telecommunications industry, and continued
government-controlled wholesale pricing as key to their viability as a competitor.

-Wholesale pricing did not play a major role in AT&T's decision to withdraw from Louisiana
and Tennessee.
-AT&T charges $54.95 a month to its One Rate USA customers in both Tennessee and Louisiana.
With UNE-P costs ranging from $20 to $25 per customer in these states, AT&T nets a healthy
profit on these customers..

-AT&T is not facing an immediate price increase in wholesale prices. We have pledged not to
raise our UNE-P rates until the end of the year, despite winning a significant court victory.

-AT&T's presence in a market brings very little consumer value.
-AT&T has not invested in network technology and thus has not brought any new functions or
capabilities to its consumers.

-AT&T did not enter the Tennessee market until late October of 2003, and only entered the
Louisiana market in January of 2004.

-AT&T is far from the only competitor in Tennessee and Louisiana, or anywhere else for that
matter.
-In Tennessee, if AT&T exits the market there will still be 80 wireline competitors, seven
major wireless competitors, and four cable providers who have announced they will offer or
who are offering VoIP telephony.

-In Louisiana there will still be 70 wireline competitors, six major wireless competitors and
three cable providers all competing for the consumers' telephony business.

-AT&T's experience, like ours, is that the market is intensely competitive and made more so
by the recent launch of the triple play ad campaigns undertaken by the cable companies,
particularly in the Louisiana and Georgia markets.

- In areas of Louisiana where AT&T has focused its competitive activity, the cable companies
account for more than twice the number of BellSouth's competitive losses as AT&T.

- Cable competition is growing quickly;


  • CABLE- In Tennessee, Comcast competes for local telephony.
    In Louisiana, both Cox and Charter compete.
      • In 2003, Cox grew its residential telephone customers by nearly 40 percent
        nation-wide.
      • Cox is offering service in New Orleans, Baton Rouge and Bossier City and just
        announced their entry into the Lafayette market.
      • Time Warner has announced they would offer telephony in Shreveport by the end of
        year.

  • VoIP - According to TR Daily of 5/3/04, Time Warner has announced that they plan to
    roll out voice-over-Internet protocol (VoIP) services throughout its entire network by
    year-end. Comcast has indicated that "half of Comcast's footprint was 'VoIP ready," and
    it would prepare the second half next year. Richard Parsons, chairman of Time Warner said
    the rebuilding of systems acquired from AT&T Broadband was 95% complete.
      • In Tennessee, companies like Vonage can offer telephony service via cable or any
        broadband connection now. And let's not forget, the recent FCC report shows cable has
        65% of broadband lines in Tennessee (DSL is 25%) as opposed to 58% nationally.
      • In the Memphis area, Time Warner has filed to offer VoIP service.


- If read carefully, it appears that AT&T's press release is more a statement of "how" they
intend to compete going forward, than "whether" they intend to compete going forward.

-AT&T faces the same dilemma faced by all participants in this dynamic market, deciding what
technology at what price to which customers. That business decision should not be confused
with a compelling policy need for governmental subsidy.

- AT&T's announcement is a political campaign. In reality, this has nothing to do with the
Solicitor General's announcement.

- The seven states covered by the announcement are all seen by political analysts as
undecided states in the presidential election. The tone and text of their release are
political threats. If AT&T chooses to exit markets in which it finds itself unable to compete
due to the robust levels of competition, then so be it. But let's not confuse the issue as a
one of consumer protection.



                                            # # #


                                For more information contact:

                                    Bill McCloskey, BellSouth
                                  [e-mail]
                                         [phone]


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