SBC Boosted by Broadband

SBC Communications Inc. (NYSE: SBC) is seeing some bright patches of growth, most notably broadband, according to its latest quarterly earnings (see SBC Reports Q1 Growth).

The second largest North American service provider and regional Bell operating company (RBOC) today reported that first-quarter 2005 revenues increased 2.4 percent to $10.2 billion from the prior year’s comparable quarter. Earnings were $885 million, or $0.27 per share on a reported basis, when including special charges associated with Cingular Wireless LLC’s merger with AT&T Wireless (SBC owns 60 percent of Cingular).

SBC’s earnings results show that newer data services, such as broadband, may now have finally overcome the long-term decline in the voice market. SBC reported that wireline revenues were up 2.8 percent and consumer wireline revenues up 3.9 percent, fueled by growth in broadband and services. The company said this is the fourth consecutive quarter showing such a trend.

For example, during the quarter, revenue for DSL services increased 28 percent, or $138 million, from the first quarter of 2004, and SBC says it has now added 1.6 million broadband lines in the last year. Growth in the DSL segment helped overcome a decline in voice revenue of $127 million from the first quarter of 2004.

It’s clear that SBC is also benefiting on other competitive fronts -- including service bundling and shifts in UNE-P. SBC said average revenue per subscriber (ARPU), was up 8 percent in the quarter from the year-ago period, a result that SBC executives attributed to the success of bundling services together as part of a broadband package.

”We’re seeing a steady improvement in revenue growth every quarter,” said SBC’s EVP and CFO, Rick Lindner.

On the UNE-P front, losses for wholesale UNE-P lines decreased, and SBC was able to transfer more of those lines over to the retail portion of the business. In essence, SBC is shedding unprofitable wholesale business and gaining retail business. This indicates that recent UNE-P rulings by the FCC are now producing favorable results for RBOCs as reflected in their quarterly reports (see The Switch Is On for CLECs).

But for those who have witnessed the gut-wrenching voice revenue and pricing declines over the past five years, perhaps the most shocking thing of all is that SBC executives said that pricing in both data and voice services may be firming up, after years of painful decline.

”We saw the first increase in five years in consumer pricing,” said Lindner.

SBC shares moved up $0.12, or 0.52%, to $23.32 on the news.

— R. Scott Raynovich, US Editor, Light Reading