SBC to Cut Jobs, Spending

PHILADELPHIA – SBC Communications Inc., the No. 2 U.S. local telephone company, on Monday posted a 31 percent decline in third-quarter net income, and said it would cut several thousand jobs and slash capital spending by about 20 percent amid the weak economy and stiff competition.

SBC's net income fell to $2.07 billion, or 61 cents a share, compared with $3.0 billion, or 88 cents a share, a year ago.

Excluding one-time items, SBC's profits increased to $2 billion, or 59 cents a share, compared with $1.96 billion, or 57 cents a share, a year ago.

Wall Street analysts expected San Antonio, Texas-based SBC's earnings to be in the range of 55 cents a share to 62 cents a share, with a mean forecast of 60 cents a share, according to research firm Thomson Financial/First Call.

Revenues, including revenues from its Cingular Wireless joint venture, increased 0.8 percent to $13.5 billion, up from $13.4 billion.

Shares of SBC traded at $42.25 in pre-market trading, down from Friday's closing price of $43.64 on the New York Stock Exchange. The stock has fallen about 8 percent this year, but outperformed the North American Telecommunications Index by about 10 percent.

SBC CAUTIOUS ABOUT 2002 GROWTH

SBC, the dominant local telephone company in the southwestern and midwestern United States, said it ``continues to work toward'' its goal of posting 2001 earnings, before one-time items, or $2.35 a share.

The company, however, expects the economic downturn to persist through 2002, further dampening business and consumer demand. SBC said economic weakness, stiff competition, and regulatory pressures, will put ``significant pressure on its ability to generate meaningful growth in 2002.'' Wall Street analysts expect the company to earn $2.53 a share in 2002, according to First Call.

Andrew Hamerling, an analyst with Banc of America Securities, attributed SBC's cautious 2002 outlook to ``local business disappointments.''

``The loss of local lines -- that's your bread and butter. If you're losing that, you're losing revenues,'' Hamerling said.

As a result, SBC said it would cut ``several thousand jobs'' and cut its capital spending by about 20 percent in 2002. The job cuts followed a similar announcement last week by local telephone company BellSouth Corp., which slashed its profit outlook for 2001 and said it shed 3,000 jobs, or 2.8 percent, of its work force. Long-distance telephone company Sprint Corp. also said it would scrap a costly high-speed network project and cut 6,000 jobs, of 7 percent of its staff.

SBC said it would slow the development of a high-speed Internet access network, called ``Project Pronto.'' SBC and other Baby Bells have been investing in new businesses such as data, Internet and wireless telephone services, but still get most of their profits from local telephone service.

``Project Pronto is, quite frankly, earnings dilutive. Scaling it back and lessening its important to the overall business is probably going to help their near-term earnings,'' Hamerling said.

But slowing the roll out of high-speed broadband services could allow rival technologies such as cable-modem services to further their lead and hurt SBC in the long-run, analysts said.

SBC last week agreed to buy the 58 percent of Internet service provider Prodigy Communications Corp. it did not already own for about $465 million in a move to expand its Internet operations beyond its current 13 U.S. states.

THIRD QUARTER DATA REVENUES UP 10 PERCENT

During the third quarter, SBC's data revenues rose 10 percent to $2.2 billion, from $2.0 billion a year ago. It added 150,000 high-speed DSL (Digital Subscriber Line) Internet service lines, up from 117,000 added in the third quarter a year ago and 83,000 added in the second quarter this year. It ended the quarter with about 1.2 million DSL.

SBC, which provides long-distance telephone service in Texas, Connecticut, Kansas and Oklahoma, said it had 4.6 million lines, up from 2.3 million a year ago.

As previously reported, Cingular Wireless, SBC's joint venture with BellSouth, added 95,000 subscribers in the third quarter, far below the 1.2 million subscribers added by smaller rival Sprint PCS Group. Cingular's quarterly revenues rose 13.6 percent to $3.4 billion, and it ended the quarter with 21.3 million wireless customers.