SBC Posts $5-Billion Profit as Sales Fall
Accounting changes and the sale of a stake in a foreign firm bumped first-quarter profit at SBC Communications Inc. to $5 billion, but the nation’s second-largest local phone company said Thursday that the defection of local phone customers to rivals continued to hammer its core business.
Net income of $1.50 a share handily beat the net loss of $193 million, or 6 cents, posted a year earlier. Sales, however, fell 1.8% to $10.3 billion. And excluding the one-time items, SBC’s earnings totaled 42 cents a share in the quarter, down from 48 cents in the year-ago period.
The performance by the San Antonio-based carrier, the major provider of local phone service in California, was paced by the December launch of SBC long-distance service in California and follows a string of upbeat financial results in the depressed telecommunications sector.
SBC and the other regional Baby Bell phone companies have watched in recent years as their traditional monopoly in local service has been eroded by competitors such as AT&T; Corp. and MCI Corp., which only recently have been allowed to sell local service. At the same time, SBC and the other Bells have aggressively offered long-distance and other services.
SBC added 1.5 million long-distance customers and 270,000 digital subscriber lines, or DSL, in the first quarter, with the greatest growth in California, the firm said. But its bread-and-butter local phone business lost 1.05 million customers -- with rivals such as MCI and Allegiance Telecom Inc. capturing about 770,000 former SBC subscribers.
SBC didn’t specify how many of those were in California, but the state is the company’s largest market and the one most coveted by local-service rivals.
SBC Chairman Edward E. Whitacre Jr. said he was pleased with first-quarter results.
“The business environment hasn’t changed in any meaningful way in terms of the economy and regulation,” Whitacre said. “What’s different for SBC is the moves we’ve made to get more aggressive in terms of marketing and sales, especially in DSL and long-distance.”
The lion’s share of SBC profit was generated by a $3.68-billion accounting change and from the $1.06-billion sale of its 15% stake in Cegetel, a joint venture that owns 80% of a French wireless company. Another accounting change reduced net income by $1.13 billion.
SBC reduced costs, primarily by cutting 2,000 jobs in the first quarter and streamlining the installation of its DSL service, which is offered in partnership with Sunnyvale, Calif.-based Yahoo Inc., owner of the popular Web portal. By using wireless DSL modems that customers install, SBC avoids having to send trucks to install the equipment. SBC also slashed capital spending to $897 million, less than half the year-ago level.
Although SBC and the other Bells have converted about 20% of their customer base to long-distance customers, the competition is stiff from entrenched long-distance carriers and cable television operators, which control two-thirds of the market for high-speed Internet access.
Earlier this month, for instance, SBC slashed its monthly DSL price in Orange County to $24.95 from $49.95 for consumers who buy DSL bundled with telephone service. The plan was designed to better compete with the high-speed cable modem service offered by cable giant Cox Communications Inc.
“The Bells have stopped the bleeding, but they don’t yet have a long-term strategy for recovery,” said Blair Levin, a telecommunications analyst in the Washington office of Legg Mason Wood Walker Inc.
SBC shares rose 72 cents to $22.52 on the New York Stock Exchange.
