SBC Communications highlights opportunities and strategies for 2004

January 7, 2004

4 Min Read

PHOENIX -- SBC Communications Inc. (NYSE: SBC) established solid growth momentum in several key areas during 2003 and expects to build on that momentum in 2004, SBC Chairman and CEO Edward E. Whitacre Jr. said today.

"We are strengthening our long-term competitive position by driving growth in long distance, DSL, wireless and the large-business market," Whitacre said during a keynote talk at Smith Barney Citigroup's Entertainment, Media and Telecommunications Conference. "These areas represent good upside opportunity for our company."

A highly focused strategy, strong execution and a major marketing push should lead to positive year-over-year revenue growth for SBC Communications by the end of 2004, including the company's proportionate share of Cingular Wireless revenues, Whitacre said.

An industry-leading bundling strategy produced solid results in 2003 and remains the cornerstone of SBC's consumer marketing strategy, Whitacre said, because it increases average revenue per user and helps stabilize the company's consumer wireline business. SBC will strengthen its bundle even further later this quarter with the introduction of SBC DISH Network satellite video services through an agreement with EchoStar Communications.

Bundle penetration continues to grow, Whitacre said. At the beginning of 2003, 19 percent of SBC's consumer retail lines had a bundle with one of its key services - long distance, DSL or wireless. By the end of the year, that penetration had more than doubled, and the company expects continued strong growth in bundle penetration in 2004, he said.

SBC expects its retail consumer access line losses to decline about 30 percent from third-quarter levels, reflecting solid initial results from the launch of long distance last fall in five Midwest states. Business voice line losses were stable in the fourth quarter, as they have been for several quarters.

Whitacre said the company's fourth-quarter performance in DSL and long distance was strong, and he expects solid growth trends to continue in both businesses in 2004. In DSL, SBC added 378,000 net lines in the fourth quarter - its eighth straight quarter of increasing net adds in broadband. SBC Long Distance added 1.7 million net new lines in the third quarter, and it expects to exceed that figure by at least 1 million in the fourth quarter. Fourth-quarter results will be released on Jan. 27.

The company's main growth opportunity on the business side is the enterprise market, Whitacre said, where SBC is better equipped to compete, now that it can offer long distance in all its 13 states.

Today, SBC has only a small piece of the business enterprise market, he said. "But if we can win business with large companies that have at least half their locations in our 13 states, that's a $34 billion market opportunity, almost all of it upside to us."

To position itself as a leader in the enterprise sector, the company has completed an out-of-region IP network, established a presence in 30 markets outside its territory, built a global sales organization and begun offering capabilities that enterprise customers want most such as service level agreements, billing flexibility and single contracts. "We see this as an important growth area," Whitacre said.

One of the company's most important priorities for 2004 is to further strengthen Cingular Wireless, in which SBC Communications owns 60 percent.

Wireline integration is "the next generation of bundling," Whitacre said, and SBC and Cingular are uniquely positioned to deliver differentiated and compelling products to the marketplace. Today, they offer single billing, combined voicemail and FastForward, allowing customers to move wireless calls to their wireline phone. "We believe this kind of integration is the future," he said.

Whitacre said investments SBC is making today to drive growth in long distance and DSL, along with start-up outlays associated with the satellite TV service launch and enhanced business offerings, will continue to pressure operating margins. However, expected revenue growth, combined with cost discipline, should begin to stabilize margins by the end of the year, he said.

SBC companies have hundreds of productivity initiatives under way that would reduce operating expenses while at the same time improving the quality of service. The goal of these initiatives is to simplify operations by standardizing technology, migrating to national platforms and automating various functions.

In addition, several factors - including better market returns on investments, benefit plan changes and significant pre-funding actions the company has taken - will help the company reduce cost pressures from its retiree benefit costs in 2004, Whitacre said.

SBC expects 2004 capital expenditures, excluding Cingular Wireless, will total $5 billion to $5.5 billion.

As previously reported, fourth-quarter 2003 results will include a one-time charge of $0.02 to $0.03 per diluted share for a work force reduction program and a one-time charge of $0.03 to $0.04 per diluted share for the company's share of pension settlement costs related to the transfer of Belgacom's pension fund to the Belgian state as part of a planned initial public offering of Belgacom. SBC is part owner of Belgacom, Belgium's leading telecommunications provider.

SBC Communications Inc.

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