SBC's Quarter: Growth in Key Areas
SBC Communications Inc. (NYSE: SBC) boasted palatable earnings and record progress in DSL and long-distance services on its first-quarter earnings call today (see SBC Posts Hefty Q1 Profit).
CEO Edward E. Whitacre Jr. lauded his company's performance. He cited focus on new opportunities and ongoing cost control as key to delivering solid results despite the downturn. "The business environment hasn't changed in any meaningful way... [including] the economic and regulatory situation," he said.
SBC reported earnings per diluted share of $0.74 -- up from $0.48 one year ago. Revenues were $10.3 billion, plus $3.6 billion from SBC's 60 percent stake in Cingular Wireless, the remainder of which is owned by BellSouth Corp. (NYSE: BLS).
Net debt was cut by $3.1 billion this quarter, SBC reported, and the carrier is showing a total net cash debt of $15.4 billion -- down by $11.3 billion from the same time last year.
Various adjustments make it tough to compare these figures directly with last quarter's (see SBC's Revenues Slide). SBC adopted new accounting methods this quarter, separated Cingular's revenues, and changed its approach to recording revenues in its directory advertising business. Pension and retiree benefits, an apparent thorn in SBC's side (see Bells Pinched by Pensions?), seem to have had a further subtle impact on some figures.
Despite all this, the carrier says revenues have sequentially risen in all of its business areas and have jumped in the areas of DSL and long distance. While neither product area is yet profitable, SBC execs say the clear momentum should bring DSL to profitability by the first quarter of 2004, and long distance within one year. Here are highlights:
- DSL: This past quarter, SBC added 270,000 DSL subscribers and now has the largest DSL base of any RBOC at 2.5 million. In comparison, Verizon recently reported 1.83 million, and BellSouth Corp. (NYSE: BLS) 1.122 million. For the last quarter of fiscal 2002, Qwest Communications International Inc. (NYSE: Q) reported 535,000 DSL subscribers.
- Long distance: SBC added 1.5 million lines this quarter, for a total of 7.6 million long-distance lines. This compares with Verizon's 13.2 million lines, and BellSouth's 1.9 million. (Qwest just started long-distance service in January, and a spokeswoman says there are no figures yet.) SBC offers long-distance service in seven of its 13 states. It plans to refile for approval in Michigan, where it recently hit a snag when the FCC raised some concerns (see Michigan Watchdog Pounds SBC); it just got approval in Nevada (see SBC Offers LD in Nevada). Execs waxed particularly proud on penetration in California, where SBC says the company has gained 10 percent of the overall retail market in the four-month period it's offered long-distance service in that state.
SBC execs also claimed "good, solid progress" for Cingular. The division had 189,000 new customers in the quarter and now has a total of 22.1 million. Customer churn is down, and operating margins are up 110 basis points year over year. Whitacre stressed that SBC is working on bundling wireline and wireless services in an effort to compete with other providers.
On the downside, SBC continues to lose retail access lines to other providers, which it blames on the FCC's UNE-P rulings which, execs maintain, make customer churn for the Bells "a fact of life" by opening portions of SBC's network to competition (see What Hath the FCC Wrought Anyway? and Fiber Players Giddy Over FCC Ruling). Still, SBC claims the number of consumer customers who fell off the roster between last quarter and this one fell by 190,000. Business services didn't fare as well: The number of non-ISDN customers ditching SBC access lines increased by 23,000 from last quarter to this one.
Overall, the report seems heartening. But it's consistent with SBC's detailed guidance provided last quarter, which predicts an ongoing challenge in access line erosion to be offset by growth in DSL, long distance, and wireless. SBC is still calling for ongoing single-digit declines in yearly revenue, and it hasn't changed its capex spending outlook from $5-6 billion for 2003.
— Mary Jander, Senior Editor, Light Reading