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SBC, Ameritech see core business shift

As SBC Communications and Ameritech move toward merging their operations, their core businesses are changing as quickly as their ownership.

As SBC Communications and Ameritech move toward merging their operations, their core businesses are changing as quickly as their ownership.

The two companies each released fourth quarter earnings today, showing companies driven more and more by data, wireless, and overseas operations rather than their traditional local phone business.

In Ameritech's case, a full third of its annual revenue growth came from its data business. This still amounts to a relatively small part of revenue for the overall company--$1.7 billion of a total $17 billion--but the trend line is pointing sharply upwards.

SBC, which has begun investing more heavily in rollouts of high-speed Internet services for consumers and businesses, said that its data services revenue for the year increased by 32 percent, to a total of more than $2.2 billion. Total 1998 revenues were $28.8 billion, up 7.9 percent from the year before.

Both companies also showed strong growth in wireless operations and in overseas investments. European affiliates accounted for a third of Ameritech's growth in the fourth quarter, the company said.

The financial news underlined what has been a growing trend for the Bells toward investment in new high-growth data services, as they try to find ways to keep revenue high--even while new competitors undermine profit margins in local phone markets.

Analysts say this earnings trend will continue, perhaps even pick up as the companies eventually win access to long distance markets and are able to bundle data, long distance, and local service in a single package without today's regulatory restrictions.

The companies are getting a jump on this package with today's early investments in data services, said Goldis-Pittsburg Investment Services analyst Marjorie Saint-Anne.

But the companies are still focusing most heavily on their core business, despite the revenue boost from the new markets, she added.

"Traditional local service is still their main source of revenue," Saint-Anne said. "They're not going to back away from that. But to raise revenue they are concentrating on other areas where demand is high, since the local telephone market is close to saturated."

The two companies are taking roughly same directions in new markets, though SBC has stepped far beyond Ameritech in rolling out DSL, or digital subscriber lines, for high-speed Internet access.

"Today's earnings news showed that both companies are obviously remaining focused," said Ameritech chief financial officer Oren Shaffer in an interview with CNBC today.

The strong growth in parallel markets for the two companies underlined the reasons for the merger, he added. "That gives us confidence that our post-merger earnings will also be strong," Shaffer said.