April 18, 2001, 12:48 PM — So much for the Baby Bells being able to avoid the market doldrums hammering almost every other company in the technology sector. San Antonio, Texas SBC Communications rang in March on a very sour note by warning that its profits for the first three months of 2001 will not meet Wall Streets expectations. The news for telecom customers isnt any better. To cut costs SBC is scaling back its already meager out-of-region service, dealing a blow to true competition between the Baby Bells.
SBC officials said they expect the companys earnings will be between 50 cents and 53 cents for the first three months of 2001. Analysts had been expecting earnings of 59 cents per share. SBC blamed the shortfall on heavy spending in expanding its long-distance, DSL and wireless services. Spending on improving the service of its operations in former Ameritech territories also hurt the telcos results, as did its $3.9 billion acquisition of e-commerce software maker Sterling Commerce last February. Company officials, however, did reaffirm that SBCs revenue growth should be between 11% and 14% for the year.
SBCs warning didnt do much to hurt the companys stock price. The day after the warning, the companys stock rose $1.07 to $46.59, well off its 52-week high of $59, but also well above its 52-week low of $38.44.
One victim of SBCs shortfall is the companys out-of-region strategy. The day after SBC issued its profit warning, the company laid off or reassigned hundreds of out-of-region sales and customer service personnel.
SBC currently offers out-of-region service in Boston; Seattle; Miami; Ft. Lauderdale, Fla.; and Nassau-Suffolk in Long Island, N.Y. The company is adding 11 more cities this month including Washington, D.C., Minneapolis and Phoenix.
However, telecom customers in cities where SBC has a presence shouldnt necessarily expect theyll be able to buy SBC services. Under an agreement the telco signed with the Federal Communications Commission as part of its merger with Ameritech, SBC must be in 15 out-of-region markets by April or face stiff fines of over $1 billion. The thinking was that increased competition in out-of-region territories would help offset reduced competition in the SBC/Ameritech areas.
But the agreement requires SBC to serve only three customers in each out-of-region market, which is hardly significant competition. By scaling back its operations, SBC is indicating that it will meet the letter of the agreement and no more.
The lack of out-of-region competition among the Baby Bells means that consumers and businesses could be stuck with no choice when it comes to choosing a provider, especially now that many competitive providers are being hit hard by a lack of venture capital.