BellSouth's Earnings Jump, But Loss Of Access Lines Is Worrisome

First-quarter profits were up by 30%, but the company is concerned about the rate it's losing business and residential access lines.
ATLANTA (AP) -- BellSouth Corp. reported a 30 percent jump in first-quarter profit on slightly lower revenue, but an executive said the company is concerned about the rate at which it is losing business and residential telephone access lines.

Chief financial officer Ron Dykes said Thursday the Atlanta-based company's top priority is to do something about the number of customers who are dropping their lines from BellSouth's rolls. Its work force numbers may have to change to deal with the line losses, he said.

"Our objective is to maintain our business and have the ability to adjust to market conditions," Dykes told analysts during a conference call. "Given the access line movement we saw in the first quarter, we probably have to readdress some of the labor costs that had an effect on margin."

In an interview, Dykes said he doesn't expect any further cuts in the number of employees to be dramatic. Its work force dropped 4 percent to 64,651 employees at the end of the first quarter compared to a year ago.

"Some parts of our business have actually hired, like Cingular, but the focus has been on the wireline business, which we've had to adjust because labor is so much of the overall cost," Dykes said.

BellSouth's total number of access lines decreased 176,000, or 3.6 percent, in the first-quarter compared to a year ago. It had 22.1 million lines at quarter-end. BellSouth blamed the line losses on competition, regulatory issues and its own technology improvements that have allowed businesses to convert voice to data, enabling them to do so with fewer lines.

Overall, the company said it earned $1.60 billion, or 87 cents a share, for the three months ending March 31, compared to earnings of $1.23 billion, or 66 cents a share, a year ago.

Excluding one-time items--charges related to work force reductions and a gain related to an asset sale--BellSouth said it earned $888 million, or 48 cents a share. On that basis, analysts surveyed by Thomson First call were expecting earnings of 47 cents a share.

Revenue in the January-March period was $4.98 billion, slightly lower than the $5.01 billion recorded a year ago.

BellSouth added 636,000 long distance customers during the first quarter, for a total of 4.6 million. It said it added 156,000 net DSL customers for a total of 1.6 million at quarter-end.

BellSouth, one of the regional phone companies that emerged from the Bell System breakup, serves 44 million customers and is the dominant local service provider in Georgia, Tennessee, Florida, Alabama, Kentucky, Mississippi, North Carolina, South Carolina, and Louisiana.

It had also served 14 countries, but announced in March that it was selling its assets in 10 Latin America countries to a wireless unit of Spanish telecommunications giant Telefonica SA for about $4.2 billion in cash and an additional $1.5 billion in debt.

BellSouth and SBC Communications Inc. of San Antonio are the parents of Atlanta-based Cingular Wireless LLC. In February, Cingular agreed to buy AT&T Wireless Services Inc. of Redmond, Wash., for $41 billion in a deal that would create the nation's largest mobile phone provider. Under the deal, BellSouth would pay 40 percent of the price.