Competition hits US phone firms

AT&T sales are still being hit by competition

Two US telephone companies have highlighted weaknesses in the market as the increased use of e-mail and wireless phones eats into their earnings.

AT&T, the leading US telecoms group, reported a return to profit for the three months to 30 September.

But this was largely thanks to new "all in one" service packages for small businesses, while overall telephone revenue was lower than last year.

Rival group BellSouth, the third-largest telephone company in the US, was also hit by slow earnings in the same three month period.

The news was expected by analysts, who have blamed the weak economy, increased competition and a shift to new communication methods for the drop in more traditional telephone usage.

AT&T back to black

AT&T reported an 8% fall in revenue to $12bn (£7.7bn) in the three months to September, when compared to the same period last year.

The business and consumer arms performed well enough to compensate for higher-than-expected subscriber loss in broadband

David Barden, Banc of America Securities

But this is still the first profit the group has reported for nine months, after losses rose sharply at the beginning of the year.

In July, it was forced to take a $13bn hit to write down the value of some assets.

AT&T, which is selling its cable television business to rival Comcast, said it was now focusing on new markets such as local telephone services to offset the drop in its core long-distance business.

The company's cable television business, AT&T Broadband, lost almost 129,000 basic subscribers because of competition but added 559,000 new digital users.

Analysts were cheered by the return to profit.

"The business and consumer arms performed well enough to compensate for higher-than-expected subscriber loss in broadband," said David Barden, analyst at Banc of America Securities.

Bellsouth hit

BellSouth, the leading telephone company in the south east of the US, has continued to suffer from the shift to electronic mail.

In the three months to 30 September, profits fell from $1.1bn to $970m on revenue down almost 6% to $7bn.

Analysts had expected the drop as the weak economy compounds the reduction in telephone lines now in service because of increased.