U.S. Long-Distance Profits Driven by Data: Industry Outlook
Bloomberg News
September 21, 1998, 2:19 p.m. ET
U.S. Long-Distance Profits Driven by Data: Industry Outlook
Sept. 21 (Bloomberg) -- AT&T Corp. and MCI WorldCom Inc.,
the top two U.S. long-distance phone companies, will report
higher third-quarter results amid surging demand for Internet and
data services.
No. 3 Sprint Corp. and No. 4 Qwest Communications
International Inc. will report lower results as Sprint spends to
build its wireless and international operations, and Qwest works
to complete its new nationwide network.
The long-distance companies are profiting as more
corporations turn to the Internet to conduct business. The
mushrooming demand for data services is bolstering the long-
distance companies as they face unprecedented competition and
declining prices for traditional voice calls. Last year, data
services revenue surpassed voice traffic for the first time in
the $70 billion-a-year U.S. long-distance industry.
''Data is really helping the long-distance carriers,'' said
Anthony Ferrugia, an analyst at A.G. Edwards & Sons.
A wave of mergers and acquisitions has swept the industry as
companies team up to offer a broader range of services to
customers and extend their reach. Those combinations, though, are
making it more difficult for analysts to assess how well the
companies are performing.
''MCI WorldCom and AT&T results continue to be difficult to
sort through given the acquisitions,'' said Blake Bath, an
analyst at Lehman Brothers Inc.
During the quarter, AT&T agreed to buy No. 2 cable company
Tele-Communications Inc. for $44.3 billion, and WorldCom
completed its $47 billion purchase of MCI Communications Corp. to
create MCI WorldCom.
New No. 2
MCI WorldCom will lead the pack in terms of growth this
quarter. The company is expected to earn 24 cents a diluted
share, according to analysts polled by First Call Corp. Year-ago
comparable results, on a pro forma basis, won't be released until
the company reports earnings on Oct 22.
During the past two years, WorldCom has been investing in
fast-growing data, local and international businesses, and MCI
has been focusing on attracting high-profit customers that spend
more for a full line of phone services.
That combination is expected to create revenue growth this
quarter of about 20 percent, analysts said.
''They happen to be in some very good market segments,''
Lehman's Bath said.
AT&T has been struggling to boost revenue by selling more
services to business customers and attracting higher-spending
consumers. AT&T's revenue rose only 0.7 percent in the first
quarter and 1 percent in the second quarter.
Revenue this quarter could rise as much as 2 percent as it
stabilizes customer losses in its consumer business by focusing
on higher-value clients, analysts said.
AT&T is also boosting profits by slashing costs, primarily a
program to cut 18,000 jobs. The company's earnings are expected
to rise to 95 cents a share from 71 cents, First Call said.
Sprint, Qwest
Sprint's profit is being dragged down by spending to build
its nationwide digital wireless service as well as its Global One
international partnership with France Telecom SA and Deutsche
Telekom AG.
The company is expected to earn 44 cents a share, down from
49 cents a year earlier, according to First Call.
Sprint is benefiting from strong demand for data services
and from rising sales of time on its network to other phone
companies.
Sprint and its Global One partners are struggling to combine
their networks and cut costs to compete with AT&T, MCI WorldCom
and other international carriers. In July, Global One's chief
financial officer quit in the second high-level management change
this year.
In its data business, Sprint is quadrupling the speed and
capacity of its Internet network to make it the fastest link in
the global computer network. Sprint is also assuming control of
its Sprint PCS wireless joint venture with cable companies TCI,
Comcast Corp. and Cox Communications Inc.
Denver-based Qwest, the newest of the Big Four, is
benefiting from its recent $4.43 billion purchase of LCI
International Inc. Qwest is quickly moving LCI's customers to its
network and is also seeing strong demand from other phone
companies for capacity on the network to keep up with a surge in
data traffic.
Qwest is expected to lose 5 cents a share, compared with a
profit of 7 cents, First Call said.
Company 3rd-Qtr Year-Ago Number of
Estimate EPS Analysts
AT&T $0.95 $0.71 26
MCI WorldCom 0.24 N/A 29
Sprint 0.44 0.49 17
Qwest -0.05 0.07 13
Estimates provided by First Call Corp. and exclude any one-time
charges or gains.
--Andrew Brooks in the Princeton newsroom (609) 279- |
