SBC lowers forecast

(Telephony) Shares of SBC Communications took a 13% hit by early afternoon trading after the giant carrier outlined a new business plan for 2001 that includes lowered revenue and earnings projections.

The revision was attributed to the slowing national economy; regulatory processes that have delayed the carrier’s entry into in-region long distance; services issues in the Ameritech region serving Illinois, Indiana, Ohio, Michigan and Wisconsin; and slowed DSL deployment arising from its delayed start in installing neighborhood gateways, according to Edward Whitacre Jr., SBC’s chairman and CEO.

“We expect to deliver very solid growth in 2001, especially with respect to our peers,” Whitacre said. “We would be growing faster except for [those] three factors.”

SBC reduced 2001 revenue growth forecasts to between 8% and 9%, compared to consensus analyst projections of more than 10%, according to First Call/Thomson Financial. Earnings per share growth is expected to be in the 11% to 14% range, somewhat lower than analysts’ previous estimates of growth in the mid-teens. Operating earnings estimates for the fourth quarter of 200 were unchanged at 56¢ to 58¢ per share.

“Most of these issues are not unique to SBC, thus other Bells may produce lower numbers than consensus expectations, but deviations would likely be small,” said Goldman Sachs Analyst Frank Governali in a report. Governali said the recent strong stock performance of the RBOCs is not sustainable and that “this fundamental event reinforces” his recommendation to “underweight” the stocks of incumbent carriers.

Growth in SBC’s wireline capital expenditures will be flat for 2001, as SBC will be “recalibrating its costs and investments to synch up with the timing of [its] growth initiatives,” said CFO Don Kiernan. Earnings growth, combined with flat capex, should increase the company’s discretionary cashflow in 2001, allowing for stock buybacks and other investments, he said. SBC repurchased 47 million shares of its stock in 2000.

Regulators were blamed for much of SBC’s revenue slowdown: Whitacre said the slow regulatory process has hindered SBC’s growth initiatives in long distance and DSL, shifting the timing of expected revenues. SBC hopes to enter long-distance markets in five additional states by year-end 2001, including California by September 2001.

DSL rollouts in the Pacific Bell and Southwestern Bell territories have been slowed by the FCC’s delayed approval of SBC’s remote terminal, or neighborhood gateway, deployment, Whitacre said. Currently, SBC’s daily net gain in DSL subscribers averages 3,500 to 4,000, and the carrier expects to maintain this pace in the first half of 2001.

The service upgrades for customers in the Ameritech region is not only delaying DSL deployment but also slicing profits. “We’ve had to divert some dollars there,” Whitacre said. The problems are primarily related to outside plant and capacity and will force the company to ease deployment of Project Pronto and DSL service in Ameritech states, Whitacre said.

Additionally, SBC’s national expansion strategy will be postponed by six months to coincide with the timing of expected long-distance approvals in California and other states.