Mixed Bag At SBC

Today, SBC Communications learned a lesson that the folks at Hewlett-Packard have known for awhile: Mergers can be costly undertakings. SBC announced at a press conference that its second-quarter profit fell 14 percent due to higher costs from its purchase of AT&T and higher costs at its Cingular Wireless division.

The telecom company said net earnings declined to $1 billion, or 30 cents per share, from $1.1 billion, or 34 cents per diluted share, in the same period a year earlier. Those results included a charge of $263 million, or 5 cents per diluted share, reflecting net impacts from strike-related costs and labor settlements. Excluding that charge and income from equity investments that were disposed of during the past year, second-quarter 2004 earnings per share would have been 38 cents.

In addition, sales rose 1.3 percent to $10.3 billion. Excluding costs from its pending purchase of AT&T Corp. and last year's acquisition of AT&T Wireless by its Cingular Wireless joint venture, SBC earned $1.4 billion, or 43 cents per share; profit beat most analysts' expectations. Revenue, including its 60 percent stake in Cingular, rose 22 percent to $15.49 billion. SBC, is currently the second largest U.S. regional phone company, but will become the leader, unseating Verizon, when the AT&T deal closes.

Revenue in SBC's wireline division totaled $9.4 billion, up 1.6 percent. Like other large local phone companies, SBC is in a highly competitive arena, and, despite having 6 million DSL (digital subscriber lines) -- the most of any telephone company -- it is feeling the pressure from cable-television providers that are also in this market. Last month, for example, SBC cut the price of its least expensive DSL service package to $14.95.