Expenses Pull Down Net Income at SBC

SBC Communications Inc. reported lower second-quarter profit Thursday as California’s dominant telephone company absorbed more costs from the acquisition of AT&T; Wireless by its Cingular Wireless joint venture.

SBC earned $1 billion in the period, or 30 cents a share, down from $1.17 billion, or 35 cents, a year ago. The lower net income included $845 million in expenses related to Cingular and the termination of a contract for long-distance services that SBC expects to provide for itself with the planned acquisition of AT&T; Corp.

Revenue rose 1.3% to $10.33 billion, up from $10.2 billion a year ago as growth in long-distance and high-speed Internet subscribers offset the loss of local phone lines to wireless and online communications.

Under accounting rules, SBC’s revenue figures do not include its proportional share of the $8.61 billion in second-quarter sales generated by Cingular, which is owned in partnership with BellSouth Corp. Instead, a 60% share of Cingular’s bottom line is factored into SBC’s net earnings.

The decline of the local phone business also slowed again. SBC finished June with about 51 million lines in service, a loss of 296,000 lines for the quarter but well below the 558,000 lost in the same period last year.

The line loss also was partially offset by the addition of 360,000 DSL accounts, growth that was fueled by aggressive promotions launched during the quarter.

Those promotions, including a $15-a-month option that undercuts many dial-up Internet services, are geared toward signing up as many broadband customers as possible in advance of SBC’s plan to launch cable TV services on a broad scale next year.

SBC executives said the new discounts were not taking a heavy toll on the company’s existing DSL subscriber base, now roughly 6 million, since many customers would need to accept reduced speeds to get the lower price.

“If you look at the promotions we’ve offered at $14.95 and $19.95, we’re seeing a ratio of 3 to 1 of new customers versus [existing] customers migrating into that price point, so we think we’re accomplishing the objective of bringing new customers into the space,” Chief Financial Officer Rick Lindner said.

SBC’s shares closed down 9 cents at $23.71.