BellSouth to Cut 2% of Its Workforce

About 2,100 positions will be lost.
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BellSouth

(BLS)

said Friday that it would cut 2,100 jobs, around 2% of its workforce, as it consolidates its voice, Internet and wireless communications businesses.

The cuts are expected to be made by the third quarter of 2000, although the company will take a $60 million-$80 million charge for severance packages in the first quarter, said Bill Getch, a BellSouth spokesman.

Analysts said the Atlanta-based regional Bell operating company must pare down its support staff and consolidate its business to offset acquisitions that could dilute its earnings and the cost of marketing its digital subscriber line service against the high-speed Internet service offered by cable companies using existing infrastructure.

Shares of BellSouth gained 2 1/8, or 5%, to 46 3/16 after the announcement. (Shares closed up 1 7/16, or 3.3%, at 45 1/2.)

Though the consolidation is intended to create a single marketing force pitching varied communications services to customers, Getch said the company's sales and marketing forces were unlikely to be cut. Instead, the cuts will be aimed at support personnel like human resources employees and members of the legal and regulatory teams from different business units.

For example, as

BellSouth Telecommunications

, a voice services unit, is integrated with

BellSouth Advertising and Publishing

, which publishes telephone directories, some managerial and administrative positions will become redundant, he said.

From the end of 1998 to the end of 1999, the company grew from employing 88,450 people to around 96,000, Getch said. And during the past 2 1/2 years, BellSouth has added 20,000 sales and marketing jobs.

"You're looking at continued cost reduction and efficiency gains," said Guy Woodlief, an analyst for

Prudential Securities

. "The objective is to be the low-cost provider." Woodlief rates BellSouth's stock a hold, and his firm has not done equity underwriting for the company.

While revenues have grown in the company's most traditional business segment, wire-line telephone service, growth in the telecommunications industry now comes primarily from international expansion and Internet and data service.

For its international business, the company has invested heavily in Latin American telecommunications companies.

But BellSouth, which primarily serves the Southeast, has been under pressure since 30,000 subscribers signed on for the company's DSL service last year, below the 100,000-customer target set by the company.

The battle for high-speed Internet customers is not expected to produce profits for years, but Wall Street is watching.

Drake Johnstone, analyst for

Davenport & Co.

, said the challenge became clear last May, in a meeting with company officials and institutional investors in Charlotte, N.C. As the company discussed its efforts to sign up DSL customers, the investors asked why they had not seen advertisements for the service and did not receive it themselves.

Some analysts have written that the proposed

merger of

America Online

(AOL)

and

Time Warner

(TWX)

bodes poorly for DSL service. The former's alliance with regional Bell operating carriers could unravel, and the latter already has cable wires running into homes and businesses.

Olde Discount Brokerage

, in a research note published Tuesday rating BellSouth's stock a buy, said those concerns are offset by the combined efforts of the regional Bells and

GTE

(GTE) - Get Report

, which is merging with

Bell Atlantic

(BEL)

to win 350,000 DSL customers.

Though consolidation is occurring across the industry, the cuts announced Friday demonstrate BellSouth's inability to turn its attention from Wall Street's earnings expectations long enough to focus on growth, said Johnstone, the Davenport analyst.

Because the infrastructure is not in place, signing up DSL customers requires winning their attention with advertising, then sending a truck over to hook up the service, all of which is expensive, he said.

Johnstone said more cuts were likely at the Baby Bells, though the cuts are likely intended to offset inevitable pressures on earnings that the companies will encounter as they spend heavily on the high-speed Internet customers.

Johnstone said the Bell companies were so concerned about their earnings that they were slow to make the sacrifices necessary to compete for high-speed Internet customers. "You have to be ready to eat your young to retain customers," he said.

Getch, the company spokesman, said most of the cuts would be made by offering employees severance packages they will accept voluntarily.