“Market conditions are much better now than a year ago,” said Randall Stephenson, CFO of SBC Communications, speaking at the Lehman Brothers Fifth Annual Telecom, Trends & Technology Conference in New York. Stephenson highlighted five key priorities in 2004 for SBC:
1. Broaden the Bundle — SBC has already bundled local access, long distance and DSL. It will soon add DBS video services in Q1. SBC believes much of its growth potential will come from expanding its ability to bundle various communications products and services, Stephenson said. Bundling reduces churn and increases average revenue per user (ARPU), he said. In the Southwest and West, where the company has sold long distance for several quarters, ARPU is about $6 higher per month than in the Midwest, where the company received approval to sell long distance only this fall. He noted that 36% of consumer lines had at least one bundled service, up from 19% a year ago.
2. Ramp Up Growth Products — SBC already has the strongest DSL growth in the country, Stephenson said. He vowed that SBC would remain very aggressive in growing its broadband market share in 2004. SBC’s in-service DSL subscriber mix currently is 73% consumer, 17% business and 10% wholesale. A year ago, the DSL mix was 65% consumer, 17% business and 18% wholesale. Verizon has also seen strong growth in long distance, adding 5.4 million lines in just nine months.
3. Move Cingular Wireless to a Strong Growth Track — In the last three quarters, Cingular Wireless – of which SBC owns 60% – has increased its high-quality subscriber growth each quarter and in Q3 it increased sequential revenue growth more than 4%. Cingular is also ahead of schedule in its conversion to GSM network technology, and has taken steps to enhance its network coverage, including a pending spectrum acquisition from NextWave Telecom and the signing of new roaming agreements. Stephenson argued that there is an “outstanding” opportunity for wireline / wireless integration, especially as it is tied into bundled services.
4. Expand in Large-Business Markets — The large-business market is a natural opportunity for SBC, Stephenson said, since nearly half the Fortune 500 companies are headquartered in areas where SBC has long-standing local service relationships. SBC’s current share of this market is small, but now that it has approvals to offer long distance in all of its 13 states, the company plans to move forward aggressively in the large-business sector, Stephenson said.
5. Deliver Value to Shareowners — Over the past two years, SBC has used cash to reduce net debt from $25 billion to $13 billion. This year, SBC has focused on returning value to shareowners through a regular dividend increase of 5 cents, plus three additional dividends totaling 25 cents.
As part of an ongoing staff reduction program, SBC plans to reduce its force by 3,000 to 4,000 in Q4, both through attrition and an enhanced retirement program. As a result, SBC expects to take a one-time, pre-tax cash charge of up to $150 million, or as much as 3 cents per diluted share, in the Q4. CAPEX for 2004 is expected to remain steady at about $5 billion.
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