SBC Reports Earnings

SAN ANTONIO -- SBC Communications Inc. (NYSE: SBC) today reported fourth-quarter and full-year 2003 financial and operating results that reflect strong growth in long distance and DSL lines and continuing improvement in access line trends.

SBC's full-year net income for 2003 was $8.5 billion, or $2.56 per diluted share, compared with $5.7 billion, or $1.69 per diluted share, in 2002. Excluding the cumulative effect of previously announced accounting changes in both years, 2003 earnings were $6.0 billion, or $1.80 per diluted share, versus $7.5 billion, or $2.23 per diluted share.

Net income for the fourth quarter of 2003 was $905 million, or $0.27 per diluted share, compared with $2.4 billion, or $0.71 per diluted share in the fourth quarter of 2002.

Excluding the effect of an extraordinary item and items announced during the quarter, fourth-quarter 2003 earnings were $0.34 per diluted share. The prior-year period also was affected by a number of previously reported items that increased fourth-quarter 2002 earnings by $0.22 a share, including a $0.12 impact from a change in directory accounting. Excluding these items, earnings were $0.49 cents per diluted share.

Year-over-year quarterly earnings comparisons also were impacted by access line losses, increases in pension and retiree benefit costs, and higher costs associated with strong growth in long distance and DSL subscribers.

Revenues for the fourth quarter of 2003 totaled $10.1 billion, compared with $11.2 billion in the year-earlier period. Operating expenses totaled $8.9 billion for the latest quarter, compared with $9.0 billion in the prior-year period. A change in accounting method for the directory business reduced both fourth-quarter 2003 revenues and expenses versus the fourth quarter of 2002. For the full year 2003, revenues were $40.8 billion, compared with $43.1 billion in 2002.

SBC's consolidated revenue and operating expense totals do not include proportionate results from Cingular Wireless, which is 60 percent owned by SBC. Cingular's revenues for the latest quarter were $3.9 billion, compared with $3.7 billion in the prior-year period.

Fourth-quarter revenues benefited from strong subscriber growth in long distance and DSL and increases in business data sales, offset by ongoing access-line losses.

Fourth-quarter expenses were increased by investments in initiatives to drive growth in long distance and DSL and to prepare for the company's planned first-quarter 2004 launch of SBC DISH Network video service and to expand its capabilities in the large-business market. Compared with expense levels in the year-earlier period, fourth-quarter operating expenses were positively impacted by the directory accounting change but adversely impacted by increased pension and retiree benefit costs. Increased pension and benefit costs had a $0.09 per share negative impact on fourth-quarter 2003 earnings, compared with the prior-year period.

Full-year 2003 operating expenses totaled $34.4 billion in 2003, versus $34.5 billion in 2002.

"Against what continues to be a very challenging industry environment, we achieved a record quarter in long distance and DSL, and our long distance launch in the Midwest this past fall was the strongest of any of our regions," said Edward E. Whitacre Jr., SBC chairman and chief executive officer.

"Our early success in the Midwest not only pushed long distance gains to new highs in the fourth quarter, but it also significantly improved access line trends in those states and put the Midwest in the lead for our DSL sales last quarter," Whitacre said. "We see good momentum going into 2004, and we expect margins to stabilize in the first quarter."

SBC was very successful in 2003 in driving increased consumer bundle subscribership, Whitacre said. Bundles increase SBC's revenue per customer and encourage access-line retention. Over the last year, the number of customers who subscribe to local phone service plus long distance, DSL or Cingular Wireless more than doubled to 44 percent.

"We expect further bundle penetration growth in 2004," Whitacre said, "as we launch another new service beginning in March — SBC DISH Network satellite TV service."

SBC also is beginning to see sales momentum in national business accounts. Whitacre said business customers increasingly are asking SBC to bid on their national accounts business, and the company won several contracts in the fourth quarter to provide national voice and data networks to Fortune 500 customers.

SBC's main target in the business sector is in the large-business market, where it is better positioned to compete now that it can sell long distance in all 50 states, Whitacre said. Large businesses with at least half their locations in the company's 13-state region represent a $34 billion market, almost all upside to SBC.

SBC Communications Inc.