SBC's 2Q Earnings Slide 22% - InformationWeek

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SBC's 2Q Earnings Slide 22%

The nation's second-largest phone company says long distance and DSL revenue increased--but so did advertising and marketing expenses.

SAN ANTONIO (AP) -- SBC Communications Inc.'s second-quarter earnings dropped 22 percent to $1.4 billion as the nation's second-largest phone company increased advertising and marketing to lure more customers in a fiercely competitive industry.

The profit, which worked out to 42 cents per share, compared with earnings of $1.8 billion, or 53 cents a share, posted in the same period a year ago by the San Antonio-based company.

Revenues for the just-ended quarter totaled $10.2 billion, compared with $10.8 billion in the year-ago period. The revenue figures do not include proportionate results from Cingular Wireless, a mobile phone partnership with BellSouth that is 60 percent owned by SBC.

In a conference call with investors, the company touted the results of an aggressive sales and advertising campaign to win new customers in long distance and DSL high-speed Internet service.

"We had a tremendous quarter in long distance and DSL--the best our industry has seen," Edward E. Whitacre Jr., SBC chairman and CEO, said in a prepared statement. "We also saw solid, sustainable progress at Cingular. We maintained good cost discipline--despite increased marketing spending and postretirement benefit cost pressures--while generating strong free cash flow and returning value directly to shareowners."

SBC reported adding 2.3 million long-distance customers in the quarter, the most quarterly net additions ever reported by one of the local Bell monopolies, pushing the company's total to 9.8 million. DSL lines rose by 304,000.

But analysts, many who had worried last quarter about the company's increased spending, remain concerned.

Richard Klugman, an analyst at Jefferies & Co. in New York, said that while SBC's increasing competitiveness in long distance, DSL and unlimited calling prices appears to be luring more customers, he's not sure if the benefits will outweigh the costs in the long run.

"The jury's still out. I'm skeptical," Klugman said.

Cingular posted revenue of $3.8 billion for the quarter, up 1 percent from last year's second quarter. Subscribers rose 540,000 to 22.6 million by quarter end.

The latest results reflect a one-time charge of $220 million, or 7 cents per share, for severance and related costs from work-force reductions. SBC has laid off almost 20,000 workers since late 2001.

Despite the slide in profits, Whitacre expressed optimism about plans to offer long-distance service in western states and a partnership to expand its bundling options.

Earlier this month, SBC applied to the Federal Communications Commission to offer long distance in Illinois, Ohio, Wisconsin, and Indiana. Whitacre said the company expects the FCC to approve the request and a prior request to offer service in Michigan by the end of October.

On Monday, SBC announced a partnership with EchoStar Communications to bundle satellite TV with SBC's other services. The new SBC DISH Network entertainment service is expected to launch in early 2004.

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