SBC’s Earnings Tumble 17% on Expenses

SBC Communications Inc. said Wednesday that fourth-quarter earnings fell 17%, pushed down by costs for acquiring AT&T; Wireless and higher severance and pension expenses.

California’s dominant local telephone company earned $754 million, or 23 cents a share, down from $905 million, or 27 cents, in the same period last year. Revenue fell 3% to $10.3 billion.

For the year, SBC’s profit fell 30% to nearly $6 billion, or $1.79 a share, from $8.5 billion, or $2.56 a share. Revenue inched up less than 1% to $40.8 billion.

Analysts weren’t wowed by the results, though shares gained 13 cents to $24.58 on the New York Stock Exchange. Excluding various charges, earnings would have been 34 cents, a penny more than analysts had expected.

SBC fired 6,000 workers last year and will cut 7,000 jobs this year, mostly by eliminating jobs left vacant by those quitting or retiring. SBC has 163,000 employees; 44,600 in California.

“It’s very clear that over the past year, we’ve taken some important steps,” said Randall Stephenson, chief operating officer of the San Antonio company. Those steps have positioned the company for growth this year, he said.

A key step, he said, was the AT&T; Wireless acquisition in December that made its majority-owned Cingular Wireless the nation’s largest mobile phone carrier. Cingular added 1.75 million customers to its network in the final three months of 2004.

Stephenson said another key step was the end of federal regulations requiring phone network owners to share their lines with rivals at regulated wholesale prices that the owners charged were below their costs.

The change in rules, along with the industry-leading high-speed Internet service and the company’s general effort to bundle services, helped it win more wireline customers back from competitors.

Bundling helped SBC grab more of the long-distance market, adding 165 million customers. Stephenson said the company expected to control 60% of that market in its 13-state region by year’s end. But with prices low, overall wireline revenue rose only 3.6% to $9.3 billion.

“The results are just weak, partly because of all the charges,” said F. Drake Johnstone, an analyst with Davenport & Co. in Richmond, Va.

Daniel Zito, an analyst at Legg Mason Wood Walker Inc. in Baltimore, called the results “mixed,” noting that although the company regained access lines, revenue was soft.

The company looks to Cingular, which it owns with BellSouth Corp., as a major generator of revenue and a way into winning customers among larger corporations.

But Johnstone said Cingular, now with 49.1 million customers, falls short in key measurements compared with Verizon Wireless, a joint venture controlled by Verizon Communications Inc.

Cingular’s average revenue per customer fell 5.8% over the last year and its turnover in customers, though improved, was still 2.6% a month.

The average revenue at Verizon Wireless has risen quarterly and its turnover has been an industry low of about 1.5% per month. Verizon Wireless gained 1.7 million customers for the quarter, giving it a total of 43.8 million customers.

“My recommendation to clients,” Johnstone said, “is that they’re better off owning Verizon with the best-performing wireless operation than owning SBC or BellSouth with a poor-performing wireless operation and trouble putting this merged business together.”