Data Offsets Long-Distance Revenue Dips
The tunnel keeps growing darker for the big three long-distance carriers, but there is a light at the end of it.
While long-distance telephone revenue continues its sharp plunge and the top companies continue their vicious price competition, the push toward data and broadband offers promising results, new first-quarter results show.
The fast-growing data business added a healthy boost to WorldComs first-quarter revenue, while the MCI long-distance division sustained a 5 percent drop compared with the first quarter of 2000. Datas percentage of revenue grew to 45 percent of WorldComs $6.1 billion first-quarter total.
AT&Ts consumer revenue, primarily its traditional long-distance business, fell a stunning 20.5 percent. But strong results from wireless, broadband and business data boosted total revenue 5.4 percent to $16.8 billion.
"Business data services revenue continued to grow at about 20 percent, despite pricing pressures," said AT&T Chairman C. Michael Armstrong. "Were focused on managing for profitability, paying down debt and executing on the strategic investments weve made in our next generation of end-to-end broadband businesses."
While AT&T and WorldCom push forward with plans to split off their shrinking long-distance businesses, rival Sprint is using long-distance to create more attractive bundles of services for business and residential customers. Despite Sprints intense marketing efforts, the wireline telephone business saw revenue drop 1 percent for the first three months of the year. In the global division, falling long-distance drove revenue down 2 percent.
Despite those travails, Sprint achieved record first-quarter revenue of $6.28 billion, a 14 percent increase from the quarter a year ago. Chairman William T. Esrey credited the growing wireless business and gave high marks to the companys ION DSL business and the fixed wireless broadband niche.
"We have shifted our focus and our resources from a predominantly wireline voice business to higher-growth areas of data, wireless and broadband services, where we expect to see significant dividends in the years to come," he said.
While the revenue growth brightened the carriers outlook, the bottom line was less heartening. Heavy investments in new data and wireless centers joined with the lower long-distance prices to cut Sprints profit 72 percent compared with the first quarter of 2000. WorldComs net income fell 49 percent, and AT&Ts earnings per share plummeted 82 percent.
For all three companies, the big picture is extremely cloudy. WorldCom Chairman Bernie Ebbers has acknowledged that mergers are likely as the long-distance carriers struggle to create workable business plans. Gary Kim, president of NxGen Data Research, predicted that none of the three companies will exist in two years. "All of them will be bought," Kim said.
For AT&T, mergers could come in parcels as the largest long-distance and cable company prepares to split into four parts over the next two years. Shareholders will get to voice their concerns about that plan next month and to vote on the breakup this summer. Institutional investors and employees have organized to try to prevent the breakup.
WorldCom expects to split off its MCI long-distance company as a tracking stock after a shareholders vote in June. Sprint, whose acquisition by MCI was stymied by regulators last year, remains a tantalizing takeover target for both the regional Bells and foreign telecom companies such as France Télécom and Deutsche Telekom.