Cellphone Deal Pulls Down Profit at SBC

Regional telephone giant SBC Communications Inc. said Monday that its first-quarter net income fell 54% because of one-time costs for the Cingular Wireless acquisition of AT&T; Wireless and large one-time gains in last year’s first quarter.

SBC, which owns 60% of Cingular, earned $885 million, or 27 cents a share, compared with $1.9 billion, or 58 cents, a year earlier. Quarterly revenue rose 2.5% to $10.25 billion.

Without its $242-million share of Cingular’s merger expenses, SBC would have earned 34 cents a share, a penny more than analysts expected. The amount also was 1 cent more than its year-earlier profit once nonrecurring benefits totaling $800 million were excluded.

The purchase in December of AT&T; Wireless made Cingular the nation’s largest cellphone company. Meanwhile, if its pending $16-billion acquisition of AT&T; Corp. is completed, SBC would become the nation’s largest phone company.

Regional phone company Qwest Communications International Inc. on Monday called the proposed SBC-AT&T; combination anti-competitive and said it would file comments opposing the deal with federal regulators.

But SBC spokesman Dave Pacholczyk, noting that Qwest is trying to buy long-distance carrier MCI Inc., said the Denver-based company was being hypocritical. “Qwest seems to be of two minds,” he said. “A merger for them is fine, but a merger for us is not fine.”

San Antonio-based SBC was one of the local phone companies created in the 1984 breakup of the AT&T; monopoly and is the dominant local phone provider in California and 12 other states.

Until last summer, AT&T; and MCI were SBC’s two biggest rivals for local phone customers. But because they have pulled out of the residential market and are in or near deals to be acquired, respectively, SBC is reaping some of the benefits.

For the first time in five years, the number of SBC’s primary residential access lines grew from one quarter to the next, increasing by 16,000 to help boost wire-line revenue nearly 3%. The gain in primary lines was offset by a 104,000 decline in additional lines, but that decline was the lowest in four years.

Over 12 months, though, SBC lost 2.4 million residential and business access lines, a 4% decrease, as customers not only dropped additional lines but also switched to cellphones and other alternatives such as voice over Internet protocol, also called broadband or digital phone service.

“A major driver of both our improved consumer access line and consumer revenue trend is our bundling strategy,” Rick G. Lindner, SBC’s chief financial officer, told analysts in a conference call Monday.

He said 64% of SBC’s customers sign up for two or more services from among local, long-distance, wireless, satellite TV and high-speed digital subscriber line, or DSL, offerings. That’s up 50% from a year ago, Lindner said.

Key to the bundling strategy, he said, is the company’s industry-leading DSL service. SBC added a record 504,000 DSL connections in the first quarter to give it a total of 5.6 million lines.

Wall Street analysts saw the quarterly results as essentially flat, with the company turning in some slightly better-than-expected numbers in some areas such as revenue and basic access lines while falling short in others.

SBC reduced its workforce, mainly through attrition, by 1,800 in the quarter, “exactly on track” with plans to eliminate 7,000 jobs the same way this year, Lindner said. It had nearly 161,000 employees at the end of March. The company cut 6,000 jobs last year.

SBC shares rose 12 cents Monday to $23.32 on the New York Stock Exchange.