A new labor agreement will raise benefit costs and trim fourth-quarter earnings at

BellSouth

(BLS)

.

The Atlanta telco said early Wednesday that the developments come in the wake of a labor agreement reached earlier this month with BellSouth's main union, the Communications Workers of America. BellSouth said the costs are related to the funding of retiree medical costs. A higher payout was one of the terms of a tentative new contract BellSouth signed Aug. 7 with the CWA.

BellSouth expects the changes to cut fourth-quarter earnings by 3 or 4 cents a share. Analysts had expected BellSouth to post a fourth-quarter profit of 49 cents a share, down from the year-earlier 51 cents.

BellSouth said its CWA deal limits its funding of retiree medical costs. BellSouth has waived the premiums in excess of these caps during the current and past contract periods and, therefore, has not collected contributions from nonmanagement retirees. BellSouth has previously calculated its obligation for nonmanagement retiree medical costs based on the terms of the written agreement with the CWA.

"The recent tentative agreement with the CWA includes an increase in the amount of the caps," BellSouth said. "With this increase, BellSouth will begin recording retiree medical costs as if there were no caps in future periods, effective in the fourth quarter of 2004. The change in the calculation will result in an increase to the retiree medical benefit obligation of approximately $3.3 billion which will be recognized over the average remaining service life of employees."

This spring, BellSouth gained a penny profit in 2004 from changes to its retiree pension and pill costs. And in January, the local phone giant said it expected a 7-cent benefit from accounting-changes related subsidized medical benefits for its retirees.

The company subsequently changed its accounting for those costs and said they would be spread over a longer period.

BellSouth shares were flat early Wednesday at $27.20.