S&P: Wireline Giants Under Pressure

Slow revenue growth, cost-cutting and labor difficulties, and increased competition plaguing wireline telecom companies, says S&P

August 26, 2004

2 Min Read

NEW YORK -- Facing increased competition and sluggish revenue growth, wireline telecommunications carriers will be continue to be challenged in their cost-reduction efforts, and labor-related issues will increase throughout 2004, says Standard & Poor's Equity Research in a semiannual study of the industry. The survey, Industry Survey on Telecommunications: Wireline, is published twice yearly by Standard & Poor's, the leading provider of independent investment research, ratings and indices.

"We expect wireline telecom companies' difficulties to continue through the remainder of 2004," says Todd Rosenbluth, Integrated Telecommunications Services Equity Analyst with Standard & Poor's Equity Research Services and author of the report. "The regional Bells should see access line declines of at least 4%, as wireless, cable, and Internet telephony make greater inroads into U.S. households. Also, with the Bells having entered long-distance markets, pricing pressures are not likely to ease."

"Although the present environment is contentious, we believe that the Baby Bells are well positioned to remain among the leading forces in the industry for years to come, due to the strengths of their existing customer relationships and their network quality," We also expect that the telecom carriers will benefit from their wireless and broadband offerings," continues Rosenbluth.

Standard & Poor's Equity Research Services holds a positive outlook on the Integrated Telecommunications Services (wireline) sub-industry. Year to date through August 20, the wireline carriers were up 0.3%, versus a 1.0% decline in the S&P 1500 Index. The telecom services sector has tended to be a strong performer as economic expansions mature with the recovery of business spending.

"In recent months, dividends and free cash flow growth have moved into the spotlight, with some carriers establishing relatively large dividend payouts. With a more defensive view toward U.S. equities, Standard & Poor's believes investors should focus on integrated telecoms that have consolidated revenue and earnings growth to support capital spending as well as dividend increases," concludes Rosenbluth.

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