Telecoms to Show Weak Results
By Jessica Hall
Thursday January 17 12:01 PM ET
PHILADELPHIA (Reuters) - Most major U.S. telecommunications companies are expected to post lower fourth-quarter profits, reflecting tight spending by consumers and businesses, and temper growth forecasts and spending plans for 2002 as the industry's malaise lingers, analysts said.
Long-distance telephone and data services companies such as AT&T Corp. (NYSE:T - news) and WorldCom Inc. (Nasdaq:WCOM - news) (Nasdaq:MCIT - news) have been hurt by competition as the Baby Bells entered the long-distance market, and customers shift to wireless telephones and electronic mail rather than making telephone calls.
Sprint Corp. (NYSE:FON - news), the No. 3 U.S. long-distance telephone company, on Tuesday warned that fourth-quarter sales from its main local and long-distance telephone business would be lower than expected, and its Sprint PCS Group (NYSE:PCS - news) wireless unit added fewer subscribers than forecast.
Verizon Wireless (NYSE:VZ - news), the No. 1 U.S. wireless services company, also added fewer customers than expected in the fourth quarter -- which historically has been strong due to holiday sales -- stoking investors' concerns that growth in the U.S. wireless market is slowing.
Meanwhile, the Baby Bells suffered from softness in spending on luxury items such as high-speed Internet lines and second telephones. Corporate layoffs, meanwhile, mean that the businesses need fewer telephone lines and transmit lower volumes of voice, data and video traffic across long-distance networks. The telecom sector's earnings season starts Jan. 22 with BellSouth.
Although some investors hoped the fourth-quarter would mark the worst of the sector's downturn, the industry lumbered into 2002 with the same problems that eroded 2001's results, analysts said.
``We believe that the worst may not yet be over for the (Baby) Bells. We expect Verizon and its competitors to report a continued deterioration in access lines and revenue growth,'' said JP Morgan Securities Inc. analyst Marc Crossman.
``We believe investors may have to wait until 2Q 2002 before they see a sequential improvement in underlying business fundamentals ... We believe that the Bells will reiterate what we have been hearing, which is that core wireline results are still deteriorating month to month,'' Crossman said in a research report.
Companies ranging from high-speed network services company Qwest Communications International Inc. (NYSE:Q - news) and local telephone company BellSouth Corp. (NYSE:BLS - news) have already cut their growth outlooks through 2002. Other companies will likely follow, trimming forecasts and cutting capital spending plans.
Moody's Investors Service said on Wednesday it may cut Qwest's ``BAA1'' long-term rating, and cautioned that ``Qwest's ability to hit its performance goals for 2002 remains challenging.''
``Qwest revised its earnings guidance several times during 2001, ultimately missing projected EBITDA (earnings before interest, taxes, depreciation and amortization) by more than $1 billion, which Moody's believes is a good indication of how difficult it is for telecom service providers to forecast performance in these economic circumstances,'' Moody's said.
Qwest, Global Crossing Ltd. (NYSE:GX - news) and other high-speed network operators have been hurt by weakness in the wholesale capacity markets and slower growth rates for business data and Internet services -- areas on which the telephone companies pinned much of their hopes for growth.
WorldCom Inc. (WCOM.O), the No. 2 U.S. long-distance telephone and data services company, has focused much of its investments and sales push on data and Internet services in an effort to distance itself from the ailing voice market. But even the data services market has had trouble.
Speaking at a Salomon Smith Barney conference in Scottsdale, Arizona, last week, WorldCom Chief Executive Bernie Ebbers said the company was behind its targets in providing services through its Digex Inc. (Nasdaq:DIGX - news) Web site hosting affiliate. Providing data services, such as Web site management, had been viewed by telecom companies as a way to boost revenues, better serve corporate customers and increase traffic on their networks.
CS First Boston analyst Dan Reingold cut his 2002 revenue growth forecast for WorldCom to 8.5 percent, from 10 percent, due to expected weakness in data and Internet revenues and the difficulty for the company to stem the decline in voice revenues.
Related Quotes
T
Q
VZ
GX
FON
PCS
BLS
DIGX
MCIT
WCOM
18.56
12.82
49.79
0.57
18.45
17.26
38.66
2.51
13.98
13.19
+0.09
-0.26
+0.44
+0.01
-0.05
+0.36
+0.31
+0.11
+0.03
-0.32 |
