SBC's Revenues Slide

SBC Communications Inc. (NYSE: SBC) says it doubled its profits during its fourth quarter, despite a 5.3 percent dip in its quarterly revenues (see SBC Reports Q4).

Following the announcement today, the company saw its stock price slide 3.3 percent in the first hour of trading today, dropping 82 cents to $24.03 a share.

Including its 60 percent stake in Cingular Wireless, SBC’s total revenues for the quarter dropped to $13.3 billion from $14 billion for the same period last year; this is below Wall Street’s consensus expectation of $13.7 billion. Excluding Cingular, SBC’s revenues declined 5.8 percent, dropping to $11.2 billion from $11.9 billion last year.

"It was disappointing,” says Guzman & Company analyst Patrick Comack. “There’s no telecom recovery in 2003.”

Despite the gloom, SBC, which is the second largest local phone carrier in the U.S., did double its fourth-quarter net earnings to $2.4 billion, or 71 cents a share, from $1.2 billion, or 35 cents a share in the year-ago period. Before special items and the impact of expensed stock options, its earnings for the quarter declined to 62 cents a share from 64 cents a share last year. These results were in line with the 57 to 63 cent consensus of analysts surveyed by Thomson First Call.

During the quarter, SBC made $701 million in one-time profits from the redemption of its interest in Bell Canada (NYSE/Toronto: BCE) and a tax benefit following the restructuring of its ownership of Sterling Commerce Inc. The company also took $352 million in charges in connection with pensions and the restructuring of Cingular.

SBC reported its results a week after disappointing results from its competitors, AT&T Corp. (NYSE: T) and BellSouth Corp. (NYSE: BLS), affirmed feelings of pessimism throughout the telecom industry (see Unknown Document 27334 and BellSouth Reports Q4).

On a conference call this morning, SBC CEO Edward Whitacre insisted that the company’s slipping revenues are due to what he calls unfair regulations, coupled with a stagnated economy and dwindling demand. “No amount of cost-cutting can undo the damage of below-cost UNE-P,” he said on the call, pointing out that in 2002 the carrier lost 2.6 million access lines to the unbundled network elements platform. He said he expects the regulatory pressures to continue in 2003. “UNE-P losses are the biggest driver of our results.”

The UNE-P regulations, which are currently under Federal Communications Commission (FCC) review, require regional Bells like SBC to lease their access lines and other network elements, like switches, to competitors at fixed, low, wholesale prices (see Will Powell Pull the Plug?). In return, the RBOCs have had the opportunity to enter the long-distance markets in many states (see RBOCs Get Long Distance Go-Ahead).

SBC has already received FCC approval to offer long-distance services in nine of its 13 states and expects to receive approvals for the remaining four states in 2003. The carrier says it expects consistent long-distance growth throughout the year, with an anticipated 20 percent penetration rate within 12 months of starting to offer long distance in a state. SBC’s long-distance push is also allowing it to make significant progress in its bundled services offerings, the company says.

SBC says it added 245,000 high-speed DSL (digital subscriber line) subscribers during the quarter, bringing its total number of customers to 2.2 million. The carrier expects to see continued DSL growth in 2003.

But while sales in long distance and DSL are expected to rise, SBC says it will face significant increases in operating expenses in 2003, driven mostly by increased pension and medical costs. The company also says it will increase spending on sales and add more than 1,000 employees to its sales workforce. However, SBC expects its overall workforce to decrease over the coming year.

For all of 2002, SBC reported that, excluding extraordinary items and effects of accounting changes, its earnings were $7.5 billion, or $2.23 per diluted share, up from $7 billion, or $2.07 per diluted share in 2001. Revenues for the year were $43.1 billion, the company reported, compared with $45.9 billion in 2001. Operating expenses for the year declined to $34.5 billion from $35.4 billion the year before.

For 2003, SBC says it expects its revenues to continue to slide, falling by low single-digit percentage rates. The company also expects its capital spending to decline to between $5 billion and $6 billion, or 12 to 14 percent of revenues, excluding Cingular. That’s down from $6.8 billion in 2002.

The company says that starting in the current quarter, it will no longer break out normalized earnings or the results after onetime items. Instead, SBC said, it will list the onetime items, as well as the Cingular results, separately.

— Eugénie Larson, Reporter, Light Reading
rjmcmahon 12/5/2012 | 12:46:27 AM
re: SBC's Revenues Slide If UNE-P is the problem, why do they spend so much money paying for television advertisemnents? If wasting shareholder money on Superbowl ads didn't work for the dot coms, why does SBC think that it will help solve their problems?

The irony of the SBC ad blitz is that the only SBC employees climbing polls seem to be the ones advertised on TV. Maybe an SBC reality show would get a few strands of fiber pulled?

PS. I heard a new law the other day, sorta like Moore's or Metcalfe's laws, it's called SBCs law. They'll double our bandwidth every 100 years while keep pricing increases above the rate of inflation. Urghh...
BobbyMax 12/5/2012 | 12:46:06 AM
re: SBC's Revenues Slide SBC is losing access lines faster than any other RBOC. Its local telephone customers are switching to other carriers because of very poor customer service.If there are problems there is noone to help. The SBC workers know that noone is monitoring their performance so nothing gets done. Its employees seem to be on vaction all the time.

Being headquartered in San Antonio it is out-of-sight of enforcement agencies. It also has instituted stock options scheme which is used to be absent from RBOC. This has broght corruption to a new height. The CEO have been the chief beneficiary of stock options.

It does not hire from outside. All its VPs numbering over 200 ( or possibly more)are former line and trunk men, The salaries of these guys is excessive by any standard.
rjmcmahon 12/5/2012 | 12:45:51 AM
re: SBC's Revenues Slide Some more lessons from India. Those rebuilding our communications infrastructure will need to defeat SBC and their bloated cost structures. The "broad gauge" lesson is that we need to forget SBC's PON for our new, socially responsible, fiber communications networks.

Calcutta has the proud distinction of being the countryGÇÖs first city to have a Metro. CalcuttaGÇÖs experience was not, however, very happy during the construction. The 17 kms Dum Dum-Tolley Ganj line took almost 22 years to complete and the cost went up by almost 12 times. During construction, the city had to undergo agonies with the main arterial roads dug up and kept open for several years.

DMRC [Delhi Metro Rail Corporation] did not want to repeat that sad experience. It dawned on us that the expertise, experience and technology needed for a world class metro was just not available in the country. Imagine the level of ignorance at even the highest level, when the RailwayGÇÖs senior technical officers insisted that Delhi Metro should adopt broad gauge to facilitate inter-running with Northern Railway. All now see that such an inter-running is not technically or commercially possible. Delhi paid a price for this ignorance when DMRC had to meekly accept broad gauge. Delhi Metro will remain gauge isolated from the rest of the worldGÇÖs Metros and ready access to the latest technologies would become difficult.
lightmaster 12/5/2012 | 12:45:14 AM
re: SBC's Revenues Slide I think that the ads run by both SBC and VFC are totally ineffective. They don't really say anything to anyone. For people who understand the deregulation issue, ads that try to paint SBC as either evil or a saint just make each side look stupid. Those unfamiliar with the issues watch the comercials and say "what the #[email protected]*^ are they talking about?"

It appears to me that this is just a sparring match between ad agencies.

lightmaster 12/5/2012 | 12:45:13 AM
re: SBC's Revenues Slide "Do you remember this "Black Rocket" stuff ?"

Yep. Never could figure out why Genuity was selling omnipotent model rockets, but my kids really wanted one for Christmas.

I hear that Genuity is now a subsidiary of Matel, and the rockets were turned over to the Raelians to be used to aid human cloning.
netskeptic 12/5/2012 | 12:45:13 AM
re: SBC's Revenues Slide > I think that the ads run by both SBC and VFC
> are totally ineffective...

Do you remember this "Black Rocket" stuff ?


runrabbitrun 12/5/2012 | 12:45:10 AM
re: SBC's Revenues Slide >> I think that the ads run by both SBC and VFC
>> are totally ineffective...

>Do you remember this "Black Rocket" stuff ?

SBC is in the consumer market. "Black Rocket" was a business service. Two different animals.

Perhaps no one has noticed but SBC-Long Distance is now the third largest consumer long distance company in Texas, measured by retail customers not revenue. And on 1/1/03 they were granted permission to offer LD service in California.

You need to advertise to get 30% of LD consumers to buy your product.

SBC still has an identity crisis. I heard a radio announcer talking about the Super Bowl ad where the guy had two putters. The radio announcer asked, "what was AT&T trying to say in that golf ad?" In fact it was an SBC Long Distance ad for Califonia LD service. SBC needs to advertise more, not less.

F16 Falcon 12/5/2012 | 12:44:49 AM
re: SBC's Revenues Slide There are many things that point to a slide in revenue. One of the most critical is stupid executive decisions to always deploy large vendor's equipment. Instead of choosing the best in class product or even one of the top 4 they choose to purchase a product from Lucent, Nortel, Alcatel, Fuji or Cisco even though it makes no sense whatsoever. Then the poor people down in the trenches are stuck making this product work even though it has no business being in that application. This causes the projects to be severely delayed and less successful. Then everyone wonders why customers don't want to buy the service. IT happens over and over and over again.

Agreed that you have to be careful with startups because they may be out of business tomorrow. But guess what? What about Nortel and Lucent? They are hanging on by the skin of their teeth. They can't even get out of their own way.

But, you will continue your good ol' boy ways. Why go through the trouble of testing products? Just take what the big boys have down on paper as gospel and deploy it. You will save alot of money and time on testing. The grunts can use the extra time getting the crap to work in the field.

Old Ross, he's our man.

Sign In