Strike Costs Hit SBC Earnings

WASHINGTON – SBC Communications Inc. (SBC) , the No. 2 U.S. telecommunications company, Thursday said second-quarter earnings fell 14 percent due to the cost of a short strike by 100,000 workers.

Excluding the strike costs, results beat analysts' estimates, and the company posted the first revenue growth in its traditional telephone business in three years. But it added fewer high-speed Internet lines than expected, which it blamed on the buildup to the strike.

SBC said it now expects to finance $8 billion to $10 billion to fund its Cingular Wireless (search) joint venture's purchase of AT&T Wireless (AWE).

Analysts on average had expected earnings of 36 cents a share before one-time items, on revenue of $11.9 billion, according to Reuters Estimates.

The four-day strike in May led to a new five-year contract with the Communications Workers of America (search) that SBC said could save $2 billion. While the deal gives union members annual wage increases and a five-year ban on some layoffs, it also allows SBC to increase health-care payments from employees and does not offer new employees the same job security as current workers.

In recent months, Baby Bells such as SBC and Verizon Communications Inc. (VZ) have won a growing share of the market for high-speed Internet connections from cable companies, taking half of all new customers for the first time in the first quarter.

While analysts expected the rate of new digital subscriber line (DSL) growth to slow in the second quarter, SBC said it added 315,000 residential DSL additions, below most estimates.

SBC Chief Financial Officer Rick Lindner said that in addition to seasonal effects, the ramp-up to the strike had curbed marketing of several services, including DSL.

The DSL results "were below our recent trends and frankly less than we'd like to see," he said.

Lindner said sales had rebounded in recent weeks. He also said the company had signed up 100,000 subscribers for a satellite television package from EchoStar Communications Corp. (DISH) with minimal advertising. The Bells have made pacts with satellite TV companies as a way to compete with cable firms, who are pushing into telephone services.

Thanks to growth in long-distance and DSL, SBC said it expects revenue for all of 2004 to equal last year's or grow by 1 percent.

Lindner said that estimate did not take into account AT&T Corp.'s (T) announcement on Thursday that it was halting marketing efforts for residential customers. He said that while SBC was seeing increased competition, it would continue to try to win back customers who had switched.

SBC shares were up 36 cents, or 1.5 percent, to $23.56 near midday on the New York Stock Exchange.