BELLSOUTH PREDICTS 2004 CAPITAL SPENDING ‘COMPARABLE’ TO LAST YEAR

For the future, Ackerman said BellSouth would focus on: (1) Intense competition in the consumer and small business markets. He stressed again that there was a need for a “new policy for the entire industry -- one that supports market- based competition, investment, growth and the consumer.” However, he said that when moving to a market-based environment, “we need to make sure that our commitment to important safeguards like 911… is as strong as ever.” On unbundling, Ackerman said “we will be in proceedings in all our states because of the FCC’s delegation of its responsibility to them, and we will produce persuasive evidence to the states about the ultimate supply of switching and transport.”

(2) Cable and VoIP competition. Ackerman said quality service, strong portfolio of products and services, market- based pricing and dense deployment were the keys to success “when it comes to competition for the high-speed pipe to the home… Others in the industry can buy the same technology as we can, but they cannot install, operate and maintain these technologies as well as we can.” He said with 80% of BellSouth DSL loops supporting 3 Mbps and 50% up to 5 Mbps, the company planned to expand its product portfolio with 3 Mbps products later this year: “We are currently finalizing the best features to include with these products and we are looking at home networking as part of that offering.” He predicted the group would reach 2.2 million subscribers and generate more than $1 billion in revenue by the end of 2004.

Ackerman said BellSouth planned to address cable competition through its agreement with DirecTV, saying the company expected to offer a voice, data and video triple play this year. He announced that the DirecTV package would be available through the BellSouth Web channel in March, with the broad rollout scheduled for the 2nd quarter and combined billing capability available in the 4th. “Combined with Cingular Wireless, we can offer packet solutions few cable companies can currently match,” he said.

Calling VoIP “a promising technology offering new features and capabilities,” Ackerman said the company’s VoIP initiatives were focused on 3 primary areas: (1) Providing VoIP solutions using IP PBX products from Cisco and Nortel to business customers. He said customers had a “trigger point” and “we provide these customers with integrated transport and premise equipment packages that we assemble for them.” (2) Providing IP-based transport for centrex features and its existing switch to the customers’ location: “This is a particularly good solution for customers who want to retain feature transparency between existing and new locations.” (3) Testing VoIP switching and feature platforms for future deployment. “With this technology we will be able to serve business customers with products like centrex IP and we will also be able to leverage our efforts to create mass market voice offerings over the IP protocol,” he said.

Another key issue is balancing the impact of wireless substitution. Ackerman said BellSouth planned to address that issue through its investment in Cingular and sale of integrated wireline-wireless packages: “With Cingular, BellSouth has a broad communications portfolio which benefits from the projected growth in wireless.” He said the effect of local number portability (LNP) on wireline-to-wireless porting had been “underwhelming. We also are combining efforts with Cingular to drive wireline and wireless integration.” As for wireless-to-wireless LNP, Ackerman said BellSouth was “certainly taking it seriously” but “the overall wireless-to-wireless porting volume is much lower than analysts had expected.” He said he expected Cingular would focus on enhancing its GSM network, which he said carried 50% of Cingular’s minutes in the 4th quarter.

Meanwhile, Sprint Chmn. Gary Forsee told the Smith Barney conference Tues. that his PCS Group expected to add one million subscribers in the 4th quarter, including 390,000 direct additions and more than 610,000 from strategic partners. He said customer churn was expected to be 2.7%, which he said was affected by local number portability, and gross additions of 1.65 million. For the full year, Forsee said total direct net additions were expected to be more than 1.1 million and total subscribers added to the PCS network more than 2 million. Total year-end subscribers using the PCS network are expected to top 20 million, he said. Forsee said he expected the FON Group would have more than 300,000 DSL subscribers at the end of the year, and Sprint’s competitive local service initiative, Sprint Complete Sense, 280,000.