SBC Sees No Recovery This Year - TheStreet

Updated from 9:12 a.m. EDT

SBC Communications

(SBC)

became the second Baby Bell in as many days Tuesday to paint a bleak picture of near-term telecom spending.

"We do not anticipate a rebound in demand for the rest of the year," said SBC's chief executive officer, Ed Whitaker, on a conference call. "We have seen that in our results for a few quarters." Whitaker also said that the regional phone company planned to cut an additional 3,000 jobs in the third quarter.

Lately, SBC was off $1.08, or 4.5%, at $22.88, while

BellSouth

(BLS)

-- which turned in a weak quarter and provided a grim outlook on Monday -- was down $1.85, or 8.2%, at $20.79. Both stocks are trading at 1997 levels.

Lowered Guidance

In the second quarter, SBC earned $1.8 billion, or 55 cents a share, compared to $2.1 billion, or 61 cents a share, in the year-ago period. Revenue was $13.1 billion, down from $13.6 billion last year.

SBC lowered its earnings guidance for the year to $2.26 to $2.35 a share from prior estimates of $2.47 to $2.52 a share. The company said it expects revenue to be flat over the next few quarters. "We will be disciplined on costs, in terms of operating expenses and capital expenditures," Whitaker said.

The Bell cut its capital spending forecast to less than $8 billion from previous guidance of $8 billion to $9 billion.

But even as investors were putting a negative spin on the company's story on Tuesday, some analysts were looking at it positively, given how cheap the stock has become over the past year.

Pegged

"SBC's multiple is close to its growth rate," said Patrick Comack, an analyst at Guzman & Co. The stock now trades at 9.4 times projected 2003 earnings, while Comack expects the company to grow 8% long term.

A major focus at SBC this quarter will be getting rid of current UNE-Platform regulations, which require local exchange carriers to sell portions of their telecom facilities to competitors at bargain prices.

Created to promote competition, the rules, in SBC's view, are creating a loss of jobs, taxes, and investment in the industry. "This UNE-P thing is just nuts," Whitaker said, on the conference call.

In the second quarter, 75% of its access-line losses were the result of UNE-P offers. On the conference call, Whitaker basically warned regulators that the UNE-P situation is not good for the economy.

"UNE-P is another pricing issue to consider," said Comack. "But I think regulators will listen to them."

Looking ahead, SBC said that it hopes to implement a three-pronged strategy of entry into long-distance markets, bundling its services, and fixing the UNE-P situation with regulators.

SBC has been packaging DSL and access line services, as well as wireline and wireless services. Those efforts are critical for the company, which can no longer rely simply on providing local service.

"The bells used to be recession-proof local service providers," said Bill Lesieur, director of Technology Business Research. "But now they have to look for new ways to do business."