U.S. Long-Distance Cos.' 2nd-Qtr Profit Mixed: Industry Outlook
Bloomberg News
June 22, 1998, 12:07 p.m. PT
U.S. Long-Distance Cos.' 2nd-Qtr Profit Mixed: Industry Outlook
June 22 (Bloomberg) -- The top four U.S. long-distance phone
companies will report mixed second-quarter results as they
struggle with lower prices for phone calls and losses in new
operations such as Internet, wireless and international.
AT&T Corp. will boost its second-quarter profit as the
nation's No. 1 long-distance company cuts costs, while No. 4
carrier WorldCom Inc. will benefit from its fast-growing data
operations.
No. 2 MCI Communications Corp. will report lower profit as
its local operations lose money and growth in its long-distance
business slows. At No. 3 Sprint Corp., wireless and international
operations will drag down earnings.
Prices for long-distance phone calls are falling. At the
same time, the carriers face increased competition from Baby
Bells such as U S West Inc., which started marketing long-
distance services for the first time this quarter.
''The success of U S West and others is having an impact on
driving down (long-distance) prices,'' said Brian Adamik, an
analyst at the Yankee Group in Boston.
AT&T and Sprint have extended their 10-cents-a-minute
discount calling plan to any time, any day. AT&T also introduced
a flat rate for wireless services, eliminating separate local and
long-distance charges.
More companies are providing Internet services at an average
price of 6.5 cents a minute -- less than half the price of
traditional long-distance calls, according to Forrester Research.
Consolidation in the industry continued during the quarter.
SBC Communications Inc. said it will buy fellow Baby Bell
Ameritech Corp. for $65.4 billion, and Qwest Communications
International Inc. bought LCI International Inc. for $4.43
billion.
AT&T
AT&T, under new Chief Executive C. Michael Armstrong, is
boosting profit by slashing costs. AT&T is expected to earn 81
cents a diluted share in the second quarter, based on a survey of
19 analysts by IBES International Inc., compared with 59 cents a
year earlier.
The company said 15,300 managers, or 25 percent of the
total, took its early-retirement offer during the quarter. That's
50 percent more than AT&T estimated earlier.
Still, investors have switched their focus to revenue
growth. First-quarter sales at AT&T rose a paltry 0.7 percent.
More of the same is expected in the second quarter.
AT&T took a first-quarter charge of $371 million, or 23
cents a share, for its failed efforts to sell local phone
services. AT&T hopes that its plan to buy local phone company
Teleport Communications Group for $12.9 billion will give it a
foothold in the $100 billion-a-year U.S. local phone market.
''I haven't seen an initiative yet to show they will turn
revenue growth around,'' Adamik said. ''People are still waiting
(to find out) what AT&T's local strategy is.''
AT&T faced long-distance competition from a Baby Bell for
the first time after U S West began marketing services from Qwest
Communications. Since then, though, several companies have
challenged the agreement, and U S West has stopped selling long-
distance services.
Sprint
Sprint's profit will decline as the company boosts spending
on new markets. Sprint is expected to earn 46 cents a diluted
share, based on an IBES survey, down from 62 cents a year
earlier.
Earlier this month, Sprint raised its 1998 capital spending
estimates almost 25 percent, primarily to pay for its wireless
operations and the construction of a new high-speed data network.
Sprint expects to spend $6.5 billion to $6.8 billion this year,
up from a previous estimate of $5 billion to $5.5 billion.
Sprint has agreed to assume full ownership of its Sprint PCS
wireless joint venture with Tele-Communications Inc., Comcast
Corp. and Cox Communications Inc. Sprint PCS is building a
nationwide digital wireless network to provide voice and data
services.
Sprint has said it expects quarterly profit to start
increasing in 1999 as losses from new operations -- wireless,
Internet and international -- narrow.
MCI, WorldCom
MCI is also losing money in those markets. MCI will earn 23
cents a diluted share, based on an IBES survey, down from 40
cents a year earlier.
''MCI will have negative year-over-year comparisons,'' said
Anna-Maria Kovacs, an analyst at Janney Montgomery Scott Inc. The
company hasn't recovered from the fourth quarter, when ''long-
distance growth slowed, and local and ventures' losses were
horrific.'' Kovacs has a ''sell'' recommendation on MCI.
MCI continues to negotiate with regulators for approval to
sell the company to WorldCom. MCI has offered to shed its entire
Internet operations to get approval, according to a European
Union official close to the negotiations.
At WorldCom, revenue and earnings from fast-growing data
services are boosting profit. Data and Internet services are more
profitable than traditional voice calls.
WorldCom is expected to earn 20 cents a diluted share, based
on an IBES survey, up from 8 cents a year earlier.
Last year, WorldCom completed its $15.5 billion acquisition
of MFS Communications Co., which is building local phone networks
in major cities to provide service to businesses.
Company 2nd-Qtr Year-Ago Number of
Estimate EPS Analysts
AT&T $0.81 $0.59 18
MCI 0.23 0.40 15
Sprint 0.46 0.62 15
WorldCom 0.20 0.08 24
Estimates provided by IBES International Inc. and exclude any one-
time charges or gains.
--Colleen McElroy in the Princeton newsroom (609) 279-4069 |
