AT&T and BellSouth have both beaten Q1 analyst predictions.

On Wednesday, the Wall Street Journal reported that BellSouth and rival AT&T had discussed potential merger scenarios. However, AT&T has said it is not for sale at its current stock valuation and is not currently considering any mergers or acquisitions.

The company’s share price made a little headway following the Wall Street Journal report, and the announcement of its Q1 results, which came in ahead of expectations. In early trading on the New York Stock Exchange, AT&T shares were up $2.29, or 16.5%, at $16.10.

AT&T reported a larger than expected profit for Q1 with a net income of $571 million, compared with a net loss of $975 million, on revenue down nearly 6% at $8.98 billion. The figures exclude its cable unit, which was sold in November 2002.

Despite the fall in first-quarter revenue, which it blamed on the continued decline of long-distance voice services, the $8.98 billion revenue figure actually beat Wall Street’s estimate of $8.9 billion, as surveyed by Thomson First Call.

BellSouth also suffered from lower revenues as customer numbers dropped due to the economy, rival offerings and a shift to wireless phones. Residential access lines were down 3.2% from a year earlier and business lines were down 4.2%.

AT&T said it expects to meet or exceed its previously stated 2003 consolidated revenue growth and operating income margin guidance. However, the consumer business is still declining alarmingly, with sales to residential customers down 17.8% to $2.5 billion. On the plus side, the decline in revenue was not as harsh as in the previous quarter, when consumer sales were down 20%.

The decline in the consumer business was partly down to falling call volumes. But a significant impact has come from intensified competition in the US as the Baby Bell local telephone carriers have entered the long-distance market with aggressive price promotions. Margins are unlikely to improve significantly in the short term, as telecoms companies compete to attract customers with cash incentives and discounted package deals.

Source: Computerwire/Datamonitor

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