SBC Communications (SBC), the No. 2 U.S. telecommunications company, reported lower first-quarter earnings Monday due to costs from the purchase of AT&T Wireless by its Cingular Wireless (search) joint venture and a large gain a year earlier.

The company, which is also buying AT&T Corp. (T), said it increased both wireless and wireline revenues, with a record number of high-speed Internet access lines sold during the quarter. Analysts said the results generally met expectations.

SBC said it earned $885 million, or 27 cents per share, compared with $1.9 billion, or 58 cents per diluted share, in the same period a year earlier. Excluding $242 million in merger costs, SBC earned $1.1 billion, or 34 cents a share.

Revenues, including its 60 percent share of Cingular, rose 21.5 percent to $15.2 billion. Analysts on average had forecast earnings before items of 33 cents per share on revenues of $15.2 billion, according to Reuters Estimates.

Like other large local telephone companies, SBC has been attempting to shift more of its business to high-growth areas, such as wireless and high-speed Internet access, and rely less on traditional voice services.

The $41 billion purchase of AT&T Wireless last year made Cingular Wireless the largest U.S. wireless carrier. SBC expects that deal to hurt its reported earnings through 2007.

Revenues in its wireline division totaled $9.3 billion, up 2.8 percent. SBC said it added 504,000 high-speed Internet subscribers, its largest quarterly increase, and 1.1 million long distance lines.

Telephone companies have been grabbing a larger share of the market for high-speed Internet access, in part through lower prices. Morgan Stanley analyst Simon Flannery said in a research note that SBC's broadband sales "lead the industry and suggest this source of growth isn't fading yet."

While its total access lines fell 1 percent during the quarter to 51.9 million, SBC said it added 16,000 primary residential phone lines, its first increase in five years.

SBC said it added 71,000 subscriptions to Echostar Corp's. (DISH) DISH satellite television service during the quarter. The company has pushed satellite TV subscriptions as a way to combat competition from cable companies, and is testing its own video services.

SBC Chief Financial Officer Rick Lindner said 64 percent of SBC's residential customers were buying a "bundle" of services during the quarter, up from 50 percent a year earlier. Those bundle deals drove the average revenue per line up 8.4 percent.

Cash generated by SBC's operations fell to $1.3 billion from $2 billion a year earlier, due to a $1.1 billion increase in taxes and a $232 million contribution to employee benefit plans. SBC also said it received a $596 million cash payment from Cingular.

SBC, which agreed earlier this year to buy AT&T Corp. for $16 billion, said the acquisition was on track to close in the first half of next year.

Shares of SBC were up 15 cents at $23.35 on the New York Stock Exchange (search).