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SEC questions phone companies' math

SEC wants more than 20 telephone carriers to explain just how they count subscribers and access lines.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
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Marguerite Reardon
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The Securities and Exchange Commission wants to know whether telephone companies have been inflating subscriber numbers to make their companies look more appealing to investors.

Representatives from AT&T, BellSouth, Verizon Communications and Cingular Wireless confirmed that they had received a letter from the SEC earlier this month asking them to explain how they calculate the number of subscribers and access lines they report publicly. More than 20 carriers are believed to have received letters.

"We got the letter and we are cooperating, as we always do with the SEC, on what is a routine request for information," said a representative for AT&T. "It's our understanding that most of the major companies in the industry received a letter as well."

The SEC appears to be looking for information to see whether carriers have changed practices to inflate subscriber numbers. The letter that AT&T received asked how the company insured that customers who cancel service are removed from totals.

SEC representatives did not return phone calls.

Subscriber data is often looked at as an important data point in assessing the growth of a particular market. Carriers such as SBC Communications have been reporting strong growth in areas such as broadband. In April, the company reported it had added a record 446,000 new DSL subscribers in the first calendar quarter of 2004. SBC now claims to have nearly 4 million digital subscriber line customers, a number that helped offset first-quarter losses in its core local phone operations.

Cell phone providers have been struggling to retain customers as competition heats up in this market. These companies suffered a major blow last year when the Federal Communications Commission issued a mandate imposing stiff penalties on cell phone carriers that don't allow customers to take their phone numbers with them when they switched providers.

Information regarding the AT&T letter and the SEC inquiry was first reported by the Wall Street Journal on Thursday.