Monday July 15, 7:06 pm Eastern Time
Reuters Business Report
Telecom Earnings to Suffer
By Jessica Hall
PHILADELPHIA (Reuters) - The major U.S. telecommunications companies will post dismal second-quarter results that reflect the scant demand and falling prices that have plagued the industry for months, souring share values and forcing several companies into bankruptcy, analysts said.
Demand for telephone lines and Internet access have waned as corporate customers, still skittish about the economy, tightened spending and laid off workers. As carriers lowered prices to retain or attract customers, profit margins suffered and the downward spiral accelerated.
"The beat goes on....there's a continued downturn in the telecom industry with no sign of recovery," said Guzman & Co. analyst Patrick Comack.
"Business spending continues to be soft and until that recovers the telecom sector is not going to recover. It's not going to be an upbeat quarter," he said.
The sector's grim growth prospects and a wave of accounting investigations at companies such as WorldCom Inc. (NasdaqNM:WCOME - News) and Qwest Communications International Inc. (NYSE:Q - News) pounded telecom stocks during the quarter. The North American Telecommunications Index (AMEX:^XTC - News) has dropped 54 percent this year, underperforming the broader Standard & Poor's 500 Index (CBOE:^SPX - News) by 42 percent.
Sprint Corp. (NYSE:FON - News; NYSE:PCS - News), which kicks off the earnings season for the major carriers on July 18, is expected to post a 7-percent drop in revenues as each segment of its business -- long-distance, local, wireless and directory publishing -- reflects the stiff competition and waning demand that will be echoed in results throughout the industry, analysts said.
Sprint, the No. 3 U.S. long-distance telephone company, recently said it would cut 1,200 jobs in its main global markets business, and add fewer-than-expected subscribers in its wireless business.
Long-distance carriers such as Sprint and AT&T Corp. (NYSE:T - News) may have seen a slight boost in business as customers that fled financially troubled rival WorldCom, which faces possible bankruptcy after a $3.85 billion accounting error.
But analysts said it may take several quarters to determine any sizable market share shifts since most business customers have multi-year contracts.
WIRELESS GROWTH TO SLOW, DRAG ON BABY BELLS
Vik Grover, an analyst with Kaufman Bros., expects Sprint's wireless telephone arm, Sprint PCS, to cut its subscriber-growth target for the year due to price wars, market maturity and a potential delay in the introduction of its new high-speed mobile service.
The slowdown in wireless sales also will dampen results for Baby Bells such as Verizon Communications (NYSE:VZ - News), SBC Communications Inc. (NYSE:SBC - News) and BellSouth Corp. (NYSE:BLS - News), analysts said. Verizon owns a stake in market leader Verizon Wireless, while SBC and BellSouth control Cingular Wireless, the No. 2 U.S. wireless carrier.
After years of frenetic gains, the wireless industry now grapples with market saturation, cut-throat pricing and the high cost of building high-speed wireless networks. The sector is expected to add 15.9 million net new subscribers in 2002, according to Lehman Brothers, down from industry estimates which were as high as 20 million to 21 million.
FIRMS MAY CUT SPENDING, GROWTH FORECASTS AGAIN
Carriers such as SBC and Verizon are expected to further cut their capital spending budgets to offset slowing growth and weak pricing. Without such cuts, it "increasingly looks like a stretch" for the Baby Bells to meet their full-year growth forecasts, said Merrill Lynch analyst Adam Quinton.
Most carriers started 2002 with hope that demand would firm in the second half of this year, but now seems unlikely until 2003, Since the telecom sector lagged the national economic downturn by several months, the industry is expected to trail on the upswing as well.
"I don't think we'll see much, if any, recovery. I would like to think that we'll bottom out sometimes in third quarter or the fourth quarter. But I think 2002 will be one of those years that will be punted -- particularly from a share price standpoint," said SoundView Technology Group analyst Michael Bowen. |
