ILECs: Wireless Provides Growth, Bundled Services Rollouts Continue

With most wireline revenues flat or showing at best modest growth, the three leading ILECs"Verizon, SBC and BellSouth"continue to put their marketing and technical muscle behind new wireless and broadband services and packages.

In its just-released second quarter financial results, Verizon showed a six percent revenue gain from the year-earlier quarter. But wireless revenue growth was 25 percent, with the company now topping the 40-million customer mark. Together with broadband and data services, wireless accounted for 52 percent of Verizon's revenue growth. By contrast, U.S. telecom operating revenues showed a 2.9 percent drop last year's second quarter.

Acknowledging that this trend may continue, Chairman and CEO Ivan Seidenberg said, "Wemade headway in offsetting an anticipated decline in traditional wireline revenues with new revenues from broadband DSL, long-distance, data and Enterprise services. Our investments in these areas are paying off, as we continue to transform our revenue mix."

Part of that transformation is offering high-speed Internet access/TV programming packages to compete with cable television providers. Verizon just announced that a marketing agreement with DIRECTV it began in Rhode Island in February has just been expanded to six mid-Atlantic states and the District of Columbia. After Rhode Island, the service was introduced to customers in California, Florida, Illinois, Indiana, Michigan, New York, Ohio, Oregon, Washington state and other New England states. The package includes DIRECTV services, local and regional service and unlimited long-distance calling and Internet access from Verizon Online.

BellSouth and SBC pursue similar patternLast week, BellSouth followed suit, offerings its own DIRECTV package in its service area. BellSouth's package, BellSouth Answers, includes local, long-distance wireless, Internet access and digital video.

SBC also has been pushing a satellite TV package option. Its deal with Dish Network was announced in July of 2003 and rolled out last March. SBC's service now has about 120,000 customers"100,000 of them added in the second quarter.

Another part of SBC's bundling strategy has been the rollout of broadband via the SBC Yahoo! DSL service. SBC delivers the service through SBC Internet Services, reportedly the nation's largest provider of DSL. The SBC Yahoo! service delivers two gigabytes of e-mail storage, 11 e-mail addresses, parental controls, security features. SBC also is offering a business-class version of the service.

As it has for Verizon, the wireless market has produced strong growth for SBC and BellSouth. Cingular Wireless, owned 60 percent by SBC and 40 percent by BellSouth, topped 25 million subscribers by the end of the second quarter. It has been averaging about 600,000 new customers per quarter over the past year. SBC believes that Cingular's bid to acquire AT&T wireless will receive government approval by year-end, which would would bring Cingular's subscriber base to about 46 million, vaulting it into first place in the U.S. market.

And boosting its Wi-Fi play, SBC recently announced a location agreement with Caribou Coffee Co. to add hot spots in hundreds of locations in nine states and the District of Columbia to SBC's FreedomLink Wi-Fi network. for Wi-Fi roaming, it announced agreements with six firms: Concourse, GoRemote, iPass, Syniverse, Telmex and Wise Technologies.Like other carriers, wireline has been a slow- or no-growth proposition for SBC. It's wireline revenues grew just 1.1 percent compared to the second quarter of 2003. Long-distance reveues, however, were up 33.2 percent.

The carrier still reported earnings of $.35 per diluted share; earnings would have hit $.40 per share, but costs strike-related costs pushed the results down. The agreement completed last quarter covered more than 100,000 SBC employees.

BellSouth also just completed labor negotiations. The tentative agreement signed over the weekend covering 45,000 employees covered by the Communications Workers of America. The five-year contract calls for pay increases of 10.5 percent over the term of the contract.

In its quarterly results announced late last month, the company reported earnings as $0.51 per share"a 4.1 percent increase over the year-ago quarter. Revenue matched the second quarter of 2003. Sharpening its focus on the domestic market, BellSouth announced at the beginning of the second quarter an agreement to sell its interest in 10 Latin American operations to Telefonica Moviles. The transaction is expected to be completed by year-end.

Verizon signs deal with CDC IXISIn the corporate market, Verizon also is pushing forward with services such as Storage Area Networks. The company just announced a five-year agreement with financial services firm CDC IXIS North America to use Verizon's Enterprise Advance network for data transport, storage and recovery. The firm is using Verizon's network for data delivery to back up servers at speeds of up to 2 Gbps.