Cingular, data drive BellSouth up

The rising tide of Cingular continued to lift BellSouth’s boat, as the company reported an increase in both revenue and quarterly profit. Normalized results, excluding revenue recorded a year ago from the sale of its Latin American operations, showed a 54 cents per share increase in earnings to $983 million, a 20% increase over the first quarter of 2005.

BellSouth is also achieving higher small business penetration in the post-UNE-P environment, said Chief Financial Officer Pat Shannon, and has seen its strategic price changes pay off in moving customers up the value chain in DSL services.

"Eighty-three percent of our DSL adds for the first quarter were to a three meg [megabit per second] or a six meg service," Shannon said on today's earnings call. "DSL has ben a great story for us. We have had a good reaction every time we have made a pricing move. Some of our pricing moves have not been as aggressive as other peoples'. We went to an every day pricing model."

When BellSouth "tweaked" its price for 3 Mb/s DSL to $37.95, a $5.00 cut, it "stimulated some nice migrations," Shannon said. "We have stopped overpromoting lower speeds at lower prices. It is very welcome to see record net adds at higher speeds, with higher ARPUs. The cost to us is the same, so we have a nice margin."

Residential ARPU is up to $62, he said, and small business ARPU is at $80, up four percent.

In fact, those higher margins, along with Cingular’s solid first quarter and offset a continued decline in access lines which BellSouth attributed to wireless substitution and cable VoIP sales. BellSouth said it added a record 263,000 new DSL customers in the quarter and saw network data revenue increase nine percent to $1.3 billion. The company reported reduced churn and “stable” revenue-per-customer.

Long-distance revenues also were up as BellSouth added 179,000 long-distance customers to reach 59% penetration of its mass-market customer base. The company added 105,000 DirecTV customers, now reaching 628,000 across its Southeast region who bundle TV service with their telephone service. More than five million customers are buying a BellSouth Answers bundle of services, or about 45 percent of residential lines.

Normalized revenue, which includes Cingular results but excludes one-time items including the ongoing impact of Hurricane Katrina, was $8.7 billion, up 4.5 percent from the first quarter of 2005. Operating margins were 21.9 percent, improving both year-over-year and sequentially. Consolidated reported revenue from continuing operations was $5.2 billion, up 1.6 percent over the previous year. Income from continuing operations was $784 million compared to $683 million in the same quarter of 2005. BellSouth reported increasing capital spending to $1.08 billion, including approximately $135 million for Katrina restoration efforts. Most of that increase was driven by broadband network expansion.

Access lines were off by a total of 238,000 with more than half of that coming on the wholesale side. Residential resale access lines were off 120,000 and small business retail access lines went up by 21,000.

BellSouth has been able to reclaim small business market share "with the demise of the UNE-P model," Shannon said. "We have done a good job of reaching out to customers and putting them in packages and on contracts."

The end of UNE-P has cut BellSouth's wholesale revenues, he conceded, but that has been partially offset by a 14% increase in wireless transport, for backhaul.