Baby Bells’ Challenges Stretch Into ’04

The four regional Bell operating companies — BellSouth, SBC, Verizon and Qwest — face internal and external challenges that will weigh on their businesses at least into 2004, according to a new report from analysts at Standard & Poor’s (S&P).

Among them: a declining customer base in their traditional markets; increased competition from new forms of communications; a stubbornly sluggish economy and a glut of fiber-optic capacity.

“S&P expects these incumbent carriers to experience access line declines of at least 4 percent, as U.S. households increasingly turn to wireless and cable offerings,” said Todd Rosenbluth, the report’s author.

Service prices will remain under pressure as telecom companies cross over into each others’ coverage areas and the Baby Bells push into long-distance.

Rosenbluth speculated that regional carriers will continue to “look outside their traditional voice services for growth and take aggressive action to retain customers.”

An example of this is morning’s partnership between BellSouth’s and DirecTV. BellSouth said it will add DirecTV’s satellite TV service to its bundle of voice, DSL Internet access and wireless.

In a conference call with reporters, BellSouth CTO Bill Smith cited increased competition from cable companies, which now sell voice service in some markets, as a motivating factors for the alliance.

Qwest also has a deal to offer DirecTV in some cities, while SBC teamed with EchoStar, operator of the DISH Network. The Bells are also experimenting with adding Wi-Fi access for its customers to access the Internet while traveling.

To counterbalance some of the expenses in 2003, the Baby Bells will likely seek to further cut costs, Rosenbluth said.

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