A state regulator questioned the validity of SBC Ameritech’s reports on Tuesday, pointing to a finding that the SBC carrier in California has hidden revenue in an effort to avoid paying $350 million in customer rebates.
Terry Harvill, a commissioner with the Illinois Commerce Commission, said that if the California audit is correct and SBC’s unit, Pacific Bell, has understated its earnings, that casts doubt on information supplied by SBC Ameritech’s unit in Illinois.
After Tuesday’s ICC meeting, Harvill said that his concern is fueled in part by the questioning of corporate veracity following the collapse of Enron Corp. The Securities and Exchange Commission has sought records from three phone companies–Global Crossing Inc., WorldCom Inc. and Qwest Communications International Inc.–to look into possible accounting irregularities.
“In the post-Enron, post-Global Crossing era, this is another area we need to pay attention to,” said Harvill. “You can ask anybody in a regulatory body. They [phone companies] do their best to hide things, and we do our best to find them.”
Selim Bingol, a spokesman for SBC Communications Inc., bristled at the suggestion of impropriety, asserting that the firm’s situation in California is nothing like the SEC inquiries into other phone companies. The California matter is “a routine thing” that was under way long before Enron gained notoriety, he said.
The case “has a long way to go before it is finally resolved, and we are very comfortable that in the end, the commission will see that we abided by the regulatory rules in California,” Bingol said.
The California report stems from an audit of Pacific Bell’s compliance with regulatory rules rather than a traditional financial audit .
David Saltz, an SBC Ameritech spokesman, said that his firm has been subjected to an audit in Illinois similar to the California audit, and that SBC Ameritech was found in regulatory compliance.
On Tuesday, congressional investigators asked bankrupt telecommunications network operator Global Crossing to turn over documents about its earnings and accounting. The investigators asked the Bermuda-based company to provide information about network capacity swaps, procedures for accounting for such transactions, the role of its auditor Andersen and stock sales by executives.
Global Crossing already is being investigated by the SEC and the FBI.
On Monday, the SEC requested documents from Qwest Communications as part of an informal inquiry into the Baby Bell’s accounting practices in 2000 and 2001.
Also Monday, WorldCom said it received a request for information from the SEC related to a number of areas, including accounting procedures and loans to officers.
Regarding SBC, ICC Commissioner Ruth Kretschmer questioned the importance of the California case, suggesting the ICC staff shouldn’t waste time worrying about it.
“California may be interesting, but I don’t see its relevance for Illinois,” Kretschmer said.
Gene Beyer, ICC telecommunications manager, said his staff is seeking more information from California regulators to fully assess the issue. He said the preliminary report “raises red flags.”
Harvill is correct that phone companies and regulators traditionally play games of hide-and-seek, said Terry Barnich, a former ICC chairman and now a Chicago-based telecommunications consultant.
Barnich also said the current move to reduce regulation and replace it with competition should lessen the problem, but whenever corporations put out misinformation it will cause disruptions.
For companies in a regulatory environment, “it can take a very long time to discipline people, and the financial fallout is socialized so that it’s spread across all the ratepayers,” he said.
In another development, SBC’s proxy letter disclosed that the firm’s chairman, Edward Whitacre, received a 10 percent raise, to $2.1 million, and a $3.8 million bonus in fiscal 2001.
The document showed that William Daley, brother of Chicago’s mayor and a former U.S. commerce secretary, received a $1.1 million signing bonus for becoming SBC president on Dec. 1, 2001. Daley’s annual salary was set at no less than $600,000. He received a $60,000 bonus for 2001. Daley will get a $600,000 bonus for 2002 and options for 90,000 SBC shares.
