BellSouth Reports Q3
Normalized operating income before depreciation and amortization (OIBDA) grew to $3.6 billion representing a 40.1 percent OIBDA margin. Revenue growth and cost containment drove OIBDA margin up 290 basis points year-over-year and 140 basis points sequentially. Normalized revenue increased 5.4 percent year-over-year driven by growth in wireless, wireline and yellow pages. Normalized revenues were nearly $9.0 billion for the third quarter of 2006. Normalized net income of $1.2 billion grew 25.8 percent compared to the third quarter of 2005.
Reported Results from Continuing Operations
For the third quarter of 2006, BellSouth's consolidated reported revenues from continuing operations were $5.2 billion, up 2.9 percent compared to the same quarter of 2005. Income from continuing operations was approximately $1.1 billion, up 29.6 percent compared to the same quarter of the previous year. For the third quarter of 2006, operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $976 million.
Capital expenditures for the quarter were $730 million, a decline compared to the first and second quarters of 2006. Year-to-date capital expenditures were $2.8 billion and included $265 million in expenditures for Hurricane Katrina restoration efforts.
Proposed Merger with AT&T
On March 5, 2006, BellSouth and AT&T announced an agreement to merge the two companies in a combination that will create a more effective and efficient provider of communications services. BellSouth and AT&T firmly believe that no conditions on this merger are necessary for this combination to be a public benefit. Nevertheless, in response to an inquiry from the Federal Communications Commission staff, AT&T indicated that, in the interest of facilitating the speediest possible approval of the merger, it would not object to the imposition of certain merger conditions. The FCC has scheduled an open meeting for Nov. 3, 2006 to consider the merger in the event the Commission has not completed its review prior to that date.
In the third quarter of 2006, Communications Group revenues were $4.7 billion, a 2.4 percent increase over the third quarter of 2005. Adjusting for the one-time customer credits of $44 million issued during the third quarter of 2005, revenue growth was 1.4 percent. Revenue growth in mass-market broadband and long distance services and growth in emerging data services offset revenue declines from traditional access line services. Revenue growth, increased penetration in broadband and long distance services and continued focus on cost containment drove Communications Group operating margin to 25.7 percent, an increase of 340 basis points year-over-year and 80 basis points sequentially.
Network data revenues exceeded $1.3 billion, a 12.8 percent increase over the third quarter of 2005, due to improvements in both retail and wholesale data services. Retail data revenues grew 19.5 percent year-over-year driven by retail DSL revenues and continued momentum from emerging retail data services.
Wholesale data revenues grew 3.3 percent as growth in wireless transport more than offset declines in general transport services. During the third quarter, BellSouth added 176,000 new DSL customers, reaching a total of more than 3.4 million broadband DSL customers. The vast majority of new customers chose BellSouth's higher speed offers -- FastAccess(R) DSL Xtreme and FastAccess(R) DSL Xtreme 6.0. Year-over-year the average revenue per unit on DSL was up slightly as improved customer mix offset revenue impacts from the discontinuance of regulatory recovery fees.
BellSouth customers continued to choose more services and save with multiple service discounts by adding long distance and DIRECTV(R) service to their BellSouth Answers(R) bundles. During the third quarter, BellSouth added 118,000 long distance subscribers. At the end of the third quarter, BellSouth served 7.6 million long distance customers representing approximately 63 percent of its mass-market customer base. Nearly 65,000 customers added DIRECTV(R) service to their bundle, resulting in a total of 756,000 customers who included DIRECTV(R) service in their BellSouth Answers(R) bundles.
As of Sept. 30, 2006, total access lines were 19.0 million down 6.9 percent year-over-year. For the quarter, total access lines declined 301,000. Retail residential access lines declined 135,000 reflecting losses to wireless substitution and cable telephony service. Retail small business access line gains were 20,000, offset by a decline in retail large business access lines of 13,000 lines. Wholesale lines declined 174,000 compared to June 30, 2006.
BellSouth Corp. (NYSE: BLS)