During the 20th Century, few businesses were as stable as telecommunications. AT&T’s gains were so predictable that phone company shares were dubbed “widow-and-orphan” stock.
A lot has happened since — Ma Bell was broken up, the Telecommunications Act passed, new technologies such as wireless and broadband Internet took hold, and the country became mired in a recession that’s still choking businesses and consumer spending.
In short, the Baby Bells have a lot more to worry about than their stay-the-course forbearer.
Verizon acknowledged as much this morning when it lowered 2003 earnings per share range to $2.56 to 2.60 per share. Previously, the New York company expected profits of $2.70 to $2.80 per share.
It also trimmed the $12.5 billion to $13.5 billion earmarked for infrastructure to $12 billion to $12.5 billion.
“We will continue to invest in growth areas,” Verizon spokesman Peter Thonis told internetnews.com. “The (capital expenditures) for wireless won’t change and we’ll continue to invest in DSL
Investment in wireless technologies will remain between $4.4 billion and $4.7, while the telecom unit will fall from $7.3 billion to $7.8 billion to $6.8 billion to $7.3 billion.
The fall in domestic telecom revenues is attributable to the groggy economy — high unemployment levels mean fewer business contracts. On the consumer side, some customers have eschewed landline phones in favor of mobile models.
Verizon said state and federal regulatory rulings, particularly the Federal Communications Commission’s Triennial Review order, will also hurt revenues. And the company spent money preparing for a possible strike of its unionized workers as well as pay out a lump sum as part of a contract settlement.
On the flip side, Verizon is seeing strong growth in DSL subscriptions. It currently has more than 2 million billed DSL lines, tracking with earlier predictions. Verizon also seeing sales of long-distance service continue to grow.
A final positive factor that helped offset the lagging telecom woes is a strong contribution from Verizon’s international business, such as Italian wireless firm Omnitel.
Some analysts foresaw the squeeze on Verizon and its Baby Bell brethren — BellSouth, SBC and Qwest. A recent report from Standard & Poor’s said the companies will face challenges at least into 2004 because of declining customer base in traditional markets, increased competition and the economy.
S&P predicted the telecoms would reach outside their traditional offerings to increase revenues and profits. For example, Verizon recently inked a deal with EMC to offer storage to business customers.
