ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, July 19, 1996 TAG: 9607190034
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: NEW YORK
SOURCE: Bloomberg Business News
The nation's two largest long-distance companies increased second-quarter earnings in line with estimates, although growth in their calling volume slowed.
AT&T Corp., the No.1 U.S. long-distance provider, said net income rose 11 percent. However, the amount of traffic carried on its network increased a slower-than-expected 5 percent.
No. 2 MCI Communications Corp.'s net income rose 15 percent, paced by record sales from long-distance services. Its volume rose 15 percent, down from 21 percent in the first quarter.
Both AT&T and MCI are feeling the effects of competition from rival Sprint Corp. The No.3 carrier's 19 percent volume growth outpaced both, as well as the industry average of 12 percent. In addition, hundreds of smaller phone companies are undercutting AT&T and MCI's prices to grab a piece of the consumer long-distance market before the Baby Bells weigh in.
``The U.S. long-distance industry is a healthy business where everybody but AT&T is growing faster than the industry,'' said Craig Ellis, an analyst at Wheat First Butcher & Singer in Richmond. ``They are doing it at AT&T's expense.''
AT&T, with about 60 percent of its long-distance revenue coming from the consumer market, is more susceptible to the increased competition, analysts said. By comparison, MCI gets about 30 percent of its long-distance revenue from consumers.
``Competition is hurting AT&T more dramatically [than MCI],'' said Michael Balhoff, an analyst at Legg Mason Wood Walker.
New York-based AT&T said profit from continuing operations rose to $1.52 billion, or 94 cents a share, from $1.37 billion, or 86 cents, a year ago. Revenue rose 2 percent to $13.03 billion from $12.76 billion.
Results were a penny above the average estimate of 93 cents, based on survey of 16 analysts by IBES International Inc.
Results from continuing operations include AT&T's long-distance, wireless and credit-card operations. They do not include Lucent Technologies Inc., AT&T Capital Corp. or NCR Corp., which will be spun off or sold as part of AT&T's restructuring unveiled last fall.
The lower-than-expected volume growth caused some investors to sell AT&T shares.
``AT&T is losing market share to MCI, Sprint, and everybody else,'' said Richard Klugman, analyst at PaineWebber.
AT&T shares fell 2 3/8 to 54 of 11.9 million shares, making AT&T the most active U.S. stock.
A new law was passed in February that allows the Bells to enter the $70 billion-a-year long-distance market, after they prove there is competition in their local phone market.
In its wireless business, revenue rose 18 percent to $854 million. At its NCR computer unit, which is in the midst of a restructuring, sales fell 18 percent to $1.68 billion.
Washington-based MCI said net income in the second quarter rose to a record $300 million, or 43 cents a share, from $260 million, or 38 cents, a year ago. Results were in line with the average estimate of 43 cents, based on a survey of 23 analyst by IBES International Inc.
Revenue rose 23 percent to $4.56 billion from $3.71 billion.
MCI's volume growth slowed as it faced more competition and tried to focus on higher-margin products. While this helped boost profits, analysts say MCI still needs to focus on the bottom line.
``MCI's core business looks really good,'' Ellis said. ``However, the company is not doing enough to bring those results to the bottom line. That has been reflected in the stock price.''
Shares fell 3/8 to 23 7/8.
MCI shares have dropped 20 percent from their high of 30 5/8 in March as some investors bet the company could lose some long-distance business once the Baby Bells enter the long-distance market.
To boost its stock price, MCI said it may buy back some of its stock.
``That is certainly a possibility that we continue to examine at the board level,'' Douglas Maine, chief financial officer of MCI, told the Bloomberg Forum.
MCI said it had a record $4.2 billion in sales in its core long-distance business, up 13 percent from a year ago. Operating profit in the long-distance business was $600 million, up almost 35 percent.
Over the past two years, MCI has diversified into many new businesses, such as the local phone, international and wireless markets. In these new operations, MCI had a loss of $69 million, on sales of $77 million in the second quarter.
In its wireless business, MCI said it grew cellular subscribers 5 percent from the first quarter, and now has a total of 391,000 customers. Wireless sales rose 9 percent from the first quarter to $96 million.
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