Telecommunications giants AT&T Inc. (NYSE:T - news) and Verizon Communications Inc. (NYSE:VZ - news) are expected to report solid second-quarter earnings, buoyed by growth in wireless and Internet subscribers.
Analysts said cost savings from mergers between AT&T and SBC Communications, as well as Verizon and MCI last year, should also soothe investor concerns over falling traditional phone revenues and competition from cable operators' all-in-one packages of voice, Internet and phone services.
"Strong broadband and wireless customer growth should offset continued access line losses in Q2," said Tom Watts, an analyst at Cowen & Co.
"Cable competition and increased (capital expenditure) remain near-term concerns. However, long-term prospects for the free cash flow generation, EPS growth and share buybacks should offset these issues," said Watts.
In a first sign of how telecom companies will perform, Cingular Wireless, a joint venture of AT&T and BellSouth Corp. (NYSE:BLS - news), said on Thursday its quarterly net income rose to $540 million from $147 million. Cingular said it added a higher-than-expected 1.5 million customers while cancellations, known as churn, fell to a record-low 1.7 percent.
Analysts on average forecast AT&T to report on Tuesday adjusted earnings of 53 cents a share for the second quarter, up from 43 cents a year ago, according to Reuters Estimates. AT&T posted earnings of 52 cents a share in the first quarter.
Verizon, due to report on August 1, was seen posting earnings of 63 cents a share before merger costs, flat with the year-ago quarter and up from 60 cents in the first quarter.
Analysts said that both companies were benefiting from their wireless operations, but they were slightly more cautious on Verizon as it was spending more heavily on a fiber optic network to deliver Web-based television and other services.
BROADBAND AND VIDEO
AT&T shares have risen about 16 percent from a year earlier, while Verizon has fallen about 7 percent. Both companies are trading at about 12 times forecast 2007 earnings excluding special items, according to Reuters Estimates.
Verizon has been investing heavily in deploying high-speed Internet connections. Aside from its digital subscriber line service, it has also been expanding its fiber-optic service network, FiOS, the backbone of Verizon's newly-launched, Web-based TV service.
AT&T has also recently launched new video services. But both telecoms firms are struggling to compete with cable providers such as Comcast (Nasdaq:CMCSA - news) and Time Warner Cable (NYSE:TWX - news), who have had a head start and an advantage of already being connected to living rooms.
"We expect Verizon to have another strong quarter in broadband, with 445,000 net additions... 130,000 in FiOS data and 315,000 in legacy DSL subscribers," UBS analyst John Hodulik said in a research report.
