2 Phone Giants Report Lackluster Quarterly Results

SBC Communications Inc. and AT&T; Corp. said Thursday that continued upheaval in their rapidly changing industry gave them little to cheer about in the third quarter, though the telecommunications titans were more upbeat about the future.

SBC posted a profit of $2.1 billion, or 63 cents a share, up from $1.2 billion, or 37 cents, in the same period last year. But much of the increase came from the sale of SBC’s yellow-page business in Illinois and northwest Indiana, which resulted in an after-tax gain of $827 million.

Income from continuing operations was flat at $1.2 billion, or 38 cents a share. Revenue rose to $10.3 billion from $10.2 billion.

SBC is the dominant local phone company in 13 states, including California. The San Antonio-based company for years has fought eroding revenue and margins as its customers have defected to competitors or new technologies, such as wireless or Internet-based calling.

Recent regulatory changes are allowing SBC to consolidate control over its network, prompting the company to step up installation of fiber-optic lines to homes. That will help SBC compete by allowing it to add video and other services to its bundle of products, Chairman Edward E. Whitacre Jr. said.

SBC shares fell 78 cents to $25.68 on the New York Stock Exchange.

As for AT&T;, the nation’s largest long-distance company reported a loss of $7.1 billion, or $8.95 a share, compared with $418 million, or 53 cents a share. Most of the loss stemmed from $12.5 billion in charges related to laying off 20% of its workforce and previously announced asset write-downs.

Without the charges -- and the $4.4-billion tax benefit they generated -- AT&T; would have posted net income of $593 million, or 75 cents a share. Revenue slid to $7.6 billion from $8.6 billion.

The same regulatory changes giving SBC more control over its network this year prompted AT&T; to stop marketing conventional phone service. Instead, Bedminster, N.J.-based AT&T; is trying to remake itself into a networking company targeting big business and residential customers with high-speed Internet connections.

AT&T; shares rose 22 cents to $15.80 on the NYSE.

Analysts said both companies turned in solid results as they grappled with dramatic changes in the once-staid phone business. Regulatory changes in the 1990s permitted unprecedented competition, but many upstarts went bust within a few years. Meantime, new technologies got cheaper and more reliable, putting pressure on providers of conventional landline service.

“The whole industry is in transition, and that means each individual company has its own challenges,” said Jeff Kagan, an independent telecom analyst in Atlanta.

In the quarter that ended Sept. 30, SBC lost 140,000 access lines, slightly more than the previous quarter, as customers dropped second lines or switched to wireless or other telephone and cable carriers. But SBC, the leading provider of high-speed digital-subscriber-line service, added 402,000 new DSL customers. It also took a large chunk of the long-distance market, attracting 1.3 million new customers. That gives it 40% of the long-distance market in its territory, up from 36%.

At AT&T;, which many analysts identify as a likely take-over target, Chairman David W. Dorman said the company’s quarterly performance showed “significant progress in transforming AT&T;’s cost structure and delivering a more effective business model for the future.”

Kagan agreed, saying the company’s results were “really quite positive.”