XM Satellite Radio subscribers increased in 2nd quarter despite posting wider loss, company said. XM added 60,476 subscribers, up 79% from previous quarter, for total of 136,718. By contrast, rival Sirius has fewer than 5,000 subscribers. XM reported net loss deepened to $117.2 million for year from $38.5 million in 2001. Loss applicable to shareholders was $122.4 million ($1.38 per share) compared with $44.3 million (76 cents). Revenue was $3.8 million. GM has started factory installation for 25 different models as company makes transition from retail-only distribution. XM also said it would introduce new generation of chips later this year.
WorldCom made largest Chapter 11 filing in U.S. history late Sun., leading FCC Chmn. Powell to issue statement providing reassurances that his agency didn’t believe action would “lead to an immediate disruption of service to consumers or threaten the operation of WorldCom’s Internet backbone facilities.” FCC Deputy Gen. Counsel John Rogovin filed appearance Mon. at U.S. Bankruptcy Court, N.Y., action characterized by spokeswoman as assuring that Commission was official party in proceeding. She said Rogovin’s role would be to make judge aware, during bankruptcy proceeding, of importance of continued service to customers, including federal govt., and need to protect universal service funding, wireless licenses and Internet. Justice Dept. (DoJ) also took action, filing motion requesting independent examiner be appointed to investigate company’s financial affairs.
Accounting practices, analyst ratings and even declaration of 5th Amendment protection came under skeptical questioning from members of House Financial Services Committee during much anticipated hearing Mon. on WorldCom’s financial scandal. Several members expressed frustration with answers by Arthur Andersen auditor Melvin Dick and Salomon Smith Barney telecom analyst Jack Grubman about their involvement in company’s problems. Those members suggested telecom analysts were being “modest” about their roles in WorldCom meltdown and were dodging questions about accounting problems that would have suggested culpability in scandal.
WorldCom, as required by SEC, filed sworn statement with agency Mon. that listed events leading to last week’s announcement it would restate financial results for 2001 and first quarter 2002. Filing appeared to blame ex-CFO Scott Sullivan and, potentially, former auditor Arthur Andersen. Carrier fired Sullivan after internal audit revealed he had categorized $3.8 billion in routine line charge expenses as capital expenditures. CEO John Sidgmore wasn’t informed of “questionable transfers” until June 20, filing said. Andersen spokesmen told WorldCom audit team it hadn’t known of transfers, “but declined to respond to questions regarding how Andersen’s audit activities could have failed to discover the transfers,” filing said. “Today’s filing is consistent with our pledge to be forthright and open, and to cooperate fully with both internal and external investigations,” Sidgmore said, and company is “absolutely committed” to operating with “highest ethical standards.”
Long-standing practice by cable MSOs of capitalizing expenses and relying on pro forma results, cash flow and earnings before interest, taxes, depreciation and amortization (EBITDA) to show Wall St. what they're worth has some analysts, investors and experts calling for big changes in way cable does its accounting. Specifically, real earnings matter, experts said, and industry needs to provide more transparency, or cable stocks will continue to be hammered. Capitalizing expenses was one of several questionable practices leading to WorldCom’s downfall, they said. Precursor Group analyst Scott Cleland called cable MSOs “the EBITDA poster children,” saying cable executives constantly focused on EBITDA at expense of debt. “The question people should ask cable is what gray area expenses do they capitalize, because cable investors have been trained to look at EBITDA and not for profit,” Cleland said. He said he believed cable was “on the wrong side of change” and that pristine accounting erred on side of expensing and not capitalizing.
IDT Winstar and Bell companies exchanged fire at FCC this week over terms of interconnection agreements to which RBOCs must be held for fixed wireless provider that has emerged from Chapter 11 protection. Last month, IDT completed acquisition of remaining stake in Winstar, giving it 100% ownership of company that filed for bankruptcy year ago. IDT Winstar filed emergency petition April 17 for declaratory ruling at FCC, citing “immediate threats” from Verizon and Qwest to deny or delay providing facilities. Winstar argued that Communications Act and FCC rules required those facilities and services to be furnished to company. But RBOCs countered that federal bankruptcy law required IDT Winstar to assume and cure past debt on contracts taken on by pre-Chapter 11 Winstar. Qwest told FCC this week: “IDT’s actions have been carefully orchestrated to migrate Old Winstar customers onto its purchased network under terms that disregard the bankruptcy laws, as well as Qwest’s tariff provisions and operational processes.” Meanwhile, General Services Administration (GSA) weighed in at Commission, contending uninterrupted service to federal customers provided by Winstar was “critical” and in some cases had national security implications.
AT&T said loss plummeted to $975 million in first quarter from $192 million loss year ago. Carrier blamed loss on declining long distance revenue, accounting change, bad investments. Revenue continued to slide, especially in long distance, to $12 billion, 11.3% below $13.6 billion last year. Required change in accounting rules that eliminated amortization of goodwill and franchise costs resulted in charge of $856 million and bad investments in other telecoms were reflected in $580 million pretax charge. Excluding one- time charges and gains, company said it earned 6 cents per share from continuing operations, beating analyst expectations. AT&T shares closed Wed. at $13.75, down 10 cents (0.72%). Central to carrier’s troubles was sharp drop in long distance business due to price wars, increased competition from Bells and customer shift to wireless and e- mail. Consumer long distance division was worst-affected, reporting 22% drop in quarter to $3.1 billion. AT&T said revenue at division would decline “in mid-20% range” for year. Business long distance unit saw 8% decline to $6.5 billion. Company forecast 2-4% drop in 2nd quarter revenue and 7% decline for year. Cable division, AT&T Broadband, said revenue slipped 1.1% to $2.44 billion, although excluding impact of Excite@Home acquisition, revenue grew by 13.9% over year ago. It said 2nd-quarter revenue for AT&T Broadband, which is under contract to be sold to Comcast, would increase 10% over last year. Echoing other major U.S. carriers, AT&T said it would cut this year’s capital spending $300-$400 million in consumer and business divisions to $3.8- $4.2 billion.
SBC/Southwestern Bell asked Tex. PUC for 911 rule authorizing it to provide E-911 answering points with number and location identification data on CLEC customers and unlisted-number customers for database verification purposes without CLECs’ or customers’ consent. SBC’s request (Case 25717) arose from request made by Tarrant County to SBC last fall, seeking number and location data on all SBC and CLEC customers in county so it could verify accuracy of its E-911 databases. SBC said it couldn’t supply complete list county wanted because its interconnection agreements with CLECs didnt allow it to share CLEC numbers with 3rd parties without CLECs’ consent and some CLECs objected. SBC also said Tex. rules prohibited it from releasing unlisted numbers to E-911 answering points unless customer had placed 911 call. In another Tex. matter, AT&T offered regulators settlement of slamming and cramming complaints. Under agreement (Case 23371) between AT&T and PUC’s consumer protection staff, which must be approved by PUC, AT&T would pay $500,000 fine plus $250,000 in victim restitution on more than 600 complaints filed with PUC between Oct. 1998 and last month. AT&T also would conduct customer education campaign on how to cancel AT&T’s services and halt billing. Settlement is far below $3.8 million fine PUC consumer staff proposed last Sept.
Insight Communications reported it had narrowed 4th quarter losses, citing increase in subscribers. Company said it had loss of almost $30.8 million on $183 million in revenue, compared with year-ago loss of almost $60.4 million. Insight said customers surged to 1.28 million in 4th quarter of 2001 from 919,000 customers in same 2000 quarter. Digital customers climbed to 230 million from 103,000, Insight said it took $3.8 million hit because of Excite@Home bankruptcy, forcing it to move its customers to another network.
Showing little adverse impact from recession in most recent tax filings, big communications associations generally enjoyed sound surpluses -- and at least 3 paid their top executives $1 million or more -- according to their latest tax returns. New leader in communications groups salary sweepstakes was CTIA Pres. Tom Wheeler, at just under $1.3 million total compensation, supplanting last year’s leader, USTA’s Roy Neel, who left partway through 2000 tax year. MPAA Pres. Jack Valenti was close 2nd at $1.16 million, followed by NCTA Pres. Robert Sachs at $1.09 million and NAB Pres. Edward Fritts at $908,552.