Once more, the Bell companies' forecasts darken

Three of the four local Bell telephone companies warned investors this week that revenue will be lower than expected.

BellSouth Corp. released disappointing earnings results for its first quarter Friday, coming in at US$0.54 a share after accounting for profit from the sale of its share of Dutch carrier Koninklijke KPN NV. Analysts had expected $0.56 a share, as polled by First Call/Thomson Financial.

The local phone carrier, based in Atlanta, cut its projections for revenue growth to 1 percent for 2002, compared to the 2 percent to 4 percent revenue growth it had been predicting. BellSouth cited a slower economic rebound than expected in North America and Latin America as contributing to weak demand for telecommunications services.

BellSouth lowered its guidance once previously this year, a few weeks after its first-quarter earnings release.

Additionally, Qwest Communications International Inc. cut its revenue predictions for 2002 by 7 percent on Thursday, lowering revenue guidance to a range between US$18 billion and $18.4 billion for the year. Qwest also announced it will lay off 2,000 employees through attrition and job cuts.

Qwest investors have also been shaken up by a U.S. Securities and Exchange Commission (SEC) investigation into its accounting practices. Qwest also cut its revenue forecast in January.

Meanwhile, SBC Communications Inc. said meeting its 2002 revenue figures would be "challenging," but refrained from giving a specific revised estimate in a Thursday release. The company is still on target for 5 percent to 7 percent growth in earnings per share, but said its capital expenditures would be below earlier estimates of $9.2 billion to $9.7 billion, citing lower demand. SBC cut capital expenditures in January as well.

Capital expenditures refer to the money telecommunication service providers spend on new equipment. The cuts defer network modernization, delaying the introduction of new technology for lowering costs. Though the cuts might preserve jobs at the service provider, equipment makers like Nortel Networks Corp. suffer from lost sales.

No major carrier is predicting a quick return to fast growth.

"They're starting to see people turning off things they don't need," said David Cooperstein, research director for telecommunications at Forrester Research Inc. Customers are turning off cell phones and rethinking the indispensability of broadband Internet service, he said.

Plain old telephone service has also reached its growth limits, he said. "Their traditional businesses are beginning to shrink, and there are technologies developing that are displacing their business."

Verizon Communications Inc. is the only major regional local phone carrier to yet report a revision in estimates. However, Verizon announced earlier this month that it would take a $2.5 billion charge to write down goodwill value on some of its intangible assets and the value of some investments in accordance with new accounting rules.

The company sees no improvement in revenue this year, but didn't formally revise earlier guidance lower. In March, Verizon said it would cut its work force by about 10,000 jobs, and would cut capital expenditure to a range of $15 billion to $16 billion from previous $17.4 billion projections for the year.

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