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BellSouth's profit up nearly 30% on wireless

Tue, 10/24/2006 - 6:47am

Copyright 2006 MarketWatch.com Inc.
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MarketWatch
October 24, 2006 Tuesday 9:05 AM EST
Jeffry Bartash, MarketWatch
From Lexis Nexis

WASHINGTON (MarketWatch) -- BellSouth Corp. on Tuesday said third-quarter net income rose nearly 30%, driven by strong gains in the company's Cingular Wireless joint venture.

The phone company, which agreed in March to be acquired by AT&T Inc., earned $1.06 billion, or 58 cents a share. A year earlier, BellSouth reported profit of $817 million, or 44 cents a share.

Revenue at the Atlanta-based carrier rose 2.9% to $5.22 billion from $5.07 billion.

Net results include income from the company's 40% stake in Cingular, but for accounting purposes wireless revenue is excluded.

On an adjusted basis, BellSouth said it earned $1.18 billion, or 65 cents a share, compared with $938 million, or 51 cents a share, a year ago. Revenue climbed 5.4% to $8.95 billion from $8.49 billion.

Adjusted results include both sales and income from Cingular but exclude onetime costs or gains.

On that basis, BellSouth was expected to earn 58 cents a share on revenue of $8.82 billion, according to the average estimate of analysts polled by Thomson First Call.

On Monday, BellSouth's (BLS) stock rose 0.7% to $45.59.

Wireless growth

The big reason AT&T (T) wants to buy BellSouth is to gain full control over the companies' fast-growing Cingular wireless business. AT&T owns the remaining 60%.

The $80 billion merger could be completed as early as November.

As previously reported, Cingular added 1.4 million net customers in the third quarter to end with a nation-leading 58.7 million.

The increase helped net income more than triple to $847 million from $222 million a year earlier. Revenue climbed 9.2% to $9.6 billion.

Aside from a strong contribution from wireless, BellSouth also posted modest growth in data, high-speed Internet and long-distance services. Those gains partly offset declines in the company's traditional local-phone business.

The company added 176,000 DSL high-speed customers to finish with more than 3.4 million in the third quarter. It also gained 118,000 long-distance accounts for a total of 7.6 million.

Total access lines, however, fell 301,000 to 19.0 million. BellSouth and other big phone companies face stiffer competition from cable operators and they are also losing "landline" customers, mostly young people, as some switch entirely to wireless service.

To combat the cable industry's entry into the phone business, AT&T plans to build a fiber network to deliver its own video service.

That strategy is likely to be extended to BellSouth's territory after the merger is concluded. For now, BellSouth is marketing DirecTV's satellite-TV service as part of a communications "bundle." At the end of the third quarter, 756,000 BellSouth customers chose DirecTV as part of a bundle, up 65,000.

The merger of the two companies still needs approval from the Federal Communications Commission, which postponed a mid-October vote. The next vote is slated for Nov. 3.

Some FCC commissioners want the phone companies to make certain concessions to ensure that the mega-merger does not hurt competition.

AT&T and BellSouth insist no conditions are necessary, but they have offered a number of proposals to speed up approval of the deal.

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