SBC CITES REGULATORY UNCERTAINTY, POOR ECONOMY FOR EARNINGS DROP
SBC said Mon. its income dropped 31% to $2 billion in 3rd quarter and revenue 15% to $11.3 billion, forcing it to cut “several thousand jobs” and reduce capital spending 20% next year. SBC Chmn. Edward Whitacre blamed poor results on “tough economy” and “adverse and uncertain regulatory environment.” Economically, “overall conditions have worsened in recent months, making for one of the most challenging business environments in recent memory,” Whitacre said. On regulatory side, “SBC today is in many respects more heavily regulated than ever,” despite passage of Telecom Act, he said.
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Company said that because of regulatory problems, it would slow its build-out of Project Pronto, broadband network to residential neighborhoods, by 20%. SBC is expected to suspend expansion into smaller markets now that Tier One market rollout is nearly complete. Chafing at fact that SBC must share its new facilities with competitors while cable doesn’t, spokesman said “when you have to open every aspect of your network at a wholesale price, it raises a question of whether it makes sense to build” new facilities. SBC will start notifying employees of layoffs “in the coming weeks” and process will continue for several months, another spokesman said. Cuts will affect all levels of employees, he said.
Thomas Weisel Partners decreased its year-end revenue estimate for SBC to $45.6 billion from $55.3 billion and earnings per share estimate to $2.34 from $2.38. Analyst Peter DeCaprio said Cingular and long distance businesses would continue to be “moderate growth drivers” for company but “we expect SBC’s core local service to feel the effects of the economy and competition” for a while. He said decision to slow Project Pronto rollout could be good news, enabling SBC to “turn a corner on sluggish profit performance.”