BellSouth 1st Quarter Results

RNS Number:7386B
Bellsouth Corp
20 April 2006

For Immediate Release
April 20, 2006

BellSouth Reports First Quarter Earnings

* Normalized earnings per share of 54 cents, up 20 percent
* Record DSL net additions, 3.1 million total DSL customers
* Strong customer growth, revenue and margin from Cingular

ATLANTA - BellSouth Corporation (NYSE: BLS) announced first quarter 2006
earnings per share (EPS) from continuing operations of 43 cents, up 16 percent
compared to the first quarter of 2005. Normalized EPS from continuing
operations was 54 cents, a 20 percent increase compared to the first quarter of
2005. A list of normalizing items is provided in the table below.

"BellSouth's strong earnings growth reflects improving trends in our operating
results," said Duane Ackerman, Chairman and Chief Executive Officer. "During
the quarter, our revenue growth was driven by the addition of broadband and
wireless customers, which demonstrated the strength of our portfolio in the
marketplace."

Normalized Results from Continuing Operations

Normalized results from continuing operations include BellSouth's 40 percent
proportionate share of Cingular's revenues and expenses which are recognized as
equity earnings for purposes of GAAP reporting. Normalized results also exclude
the impact of significant nonoperational or nonrecurring items.

For the first quarter of 2006, normalized revenue was $8.7 billion, up 4.5
percent year-over-year generated by growth in Communications Group, Cingular and
Advertising & Publishing. Operating margins were 21.9 percent, improving
year-over-year and sequentially. Normalized net income of $983 million grew 20
percent compared to the first quarter of 2005 driven primarily by Cingular's
improved profitability.

Reported Results from Continuing Operations

For the first quarter of 2006, BellSouth's consolidated reported revenue from
continuing operations totaled $5.2 billion, up 1.6 percent compared to the same
quarter of 2005. Income from continuing operations was $784 million compared to
$683 million in the same quarter of the previous year.

For the first quarter of 2006, operating free cash flow (defined as net cash
provided by operating activities less capital expenditures) was $551 million.
Capital expenditures for the quarter amounted to $1.08 billion, including
approximately $135 million of incremental expenditures for Katrina restoration
efforts. Net of storm impacts, increased levels of capital expenditures were
driven by planned 2006 acceleration of broadband investments toward the first
half of the year.

Proposed Merger with AT&T

On March 5, 2006, BellSouth and AT&T announced an agreement to merge the two
companies in a combination that will create a more effective and efficient
provider of wireless, broadband, video, voice and data products. We currently
expect the merger to close by the end of 2006.

The combination creates economies of scale to better enable investments in new
technologies and to pursue opportunities in the broadband and enterprise
markets, including integration of wireline/wireless product offerings. The
combination of the two companies is expected to create enhanced marketing
opportunities, significant network synergies and reduced overhead costs. The
merger with AT&T is an excellent opportunity to take two complementary asset
portfolios and make them stronger to benefit shareholders, customers and
employees.

"To be successful in the marketplace, a company must innovate and deliver new
services that customers want," said Duane Ackerman. "The proposed merger of AT&
T and BellSouth will create new potential for innovation and the ability to
deliver those services with a more cost efficient operating structure. The
communications industry is a world full of possibilities, and I believe that we
now stand at the beginning of a great new day for communications in America."

Communications Group

Communications Group revenue was $4.7 billion in the first quarter of 2006, a
1.3 percent increase compared to the same quarter of 2005. All retail business
segments delivered improving revenue trends both year-over-year and sequentially
driven by strong growth from data and long distance.

During the first quarter, BellSouth added a record 263,000 net new broadband DSL
customers and served more than 3.1 million total customers at quarter-end.
BellSouth offers four FastAccess services with simple pricing to meet market
demand for a variety of speeds and prices. The company continues to see growth
in demand and migrations towards higher speeds of DSL service. With improving
churn and stable average revenue per unit, DSL continues to be a key value
driver for BellSouth.

For the first quarter, network data revenue was $1.3 billion, up 9.0 percent
from the same period of the prior year. Retail data revenue grew 15.8 percent
from the same period last year driven by a 31.8 percent increase in retail DSL
revenue and ongoing growth in revenue from emerging retail data services such as
BellSouth(R) Metro Ethernet Service and BellSouth(R) Virtual Private Network.
Total wholesale data was stable as demand for wholesale services from wireless
carriers remained strong.

Customers continue to combine local and long distance voice, DSL, DIRECTV(R) and
Cingular Wireless under the BellSouth Answers(R) bundles. BellSouth added
179,000 long distance customers and now serves almost 7.4 million long distance
customers, a 59 percent penetration of its mass-market customer base. Once
again, the company had strong growth in customers choosing to add DIRECTV(R)
service to their BellSouth bundles, adding 105,000 customers. Through the first
quarter of this year, 628,000 customers have included DIRECTV(R) service in
their communications packages. By the end of first quarter 2006, more than 5
million residential customers had a BellSouth Answers(R) bundle, nearly 45
percent penetration of its retail residential lines.

As of March 31, 2006, total access lines were 19.8 million, down 238,000
compared to Dec. 31, 2005. Residential access line loss continues to be
primarily driven by wireless substitution and, to a lesser extent, by
competition from cable telephony providers. Retail residential access lines
were down 120,000. Retail business access lines increased 21,000 driven by
Small Business gains. Wholesale lines resold by BellSouth competitors were down
137,000 compared to Dec. 31, 2005.

Communications Group operating margin was 23.6 percent compared to 24.2 percent
for the same quarter of the previous year. Margins were negatively impacted as
the company incurred approximately $85 million in incremental expenses
completing the network repairs associated with damage caused by Hurricane Wilma
which struck southern Florida in late October 2005.

Summary Impacts of Hurricane Katrina

During the first quarter of 2006, BellSouth recognized incremental expenses
associated with Hurricane Katrina of $94 million which is net of $20 million in
insurance recoveries during the quarter. BellSouth also incurred approximately
$135 million of incremental capital expenditures for Katrina restoration. Since
the third quarter of 2005, BellSouth has incurred approximately $730 million for
Katrina-related network restoration expense and capital spending. We expect a
portion of the cost associated with the Hurricane Katrina recovery effort to be
covered by insurance. While the exact amount has not been determined, our
current estimate of the total amount of covered losses that will be covered by
insurance, net of our deductible, is approximately $250 million. The actual
recovery will vary depending on the outcome of the insurance loss adjustment
effort.

Cingular Wireless

Cingular Wireless was the primary contributor to BellSouth's earnings growth in
the first quarter of 2006 as the benefits of scale and synergies created in its
acquisition of AT&T Wireless are being realized. Cingular, the nation's largest
wireless provider, added 1.7 million net new customers during the first quarter
of 2006, reaching 55.8 million total subscribers. Retail customer additions
were 1.05 million for the quarter with nearly 90 percent coming from post-paid
net additions. Overall monthly subscriber churn for the quarter was 1.9
percent, the lowest level ever, and post-paid churn also improved to a record
1.6 percent.

Cingular's continued strong performance in customer additions and churn
improvement can be attributed to improved service quality as the company
integrates its networks, marketing campaigns that reinforce service improvements
including "fewest dropped calls," and a steady stream of innovative products and
services.

In the first quarter of 2006, Cingular's revenues were $9.0 billion, an
improvement of 9.1 percent over the same quarter a year ago and up 1.5 percent
sequentially.

Average revenue per user (ARPU) in the first quarter of 2006 was $48.48, down
2.3 percent from the year-ago first quarter. The decline in ARPU can be
primarily attributed to the recent increase in reseller customers, which
typically carry a lower ARPU. Excluding the impacts of growth in reseller
customers, Cingular ARPU improved year-over-year driven by growth in data
services. Data ARPU continued its strong growth in the first quarter of 2006,
increasing 41.1 percent to $5.22 compared to the first quarter of the previous
year and up 10.8 percent sequentially.

For the first quarter of 2006, normalized operating income before depreciation
and amortization (OIBDA) margin was 31.9 percent, which was a 640 basis point
improvement compared the first quarter of 2005. Cingular's steady margin
improvement is indicative of progress on its integration plans.

Advertising & Publishing

Reflecting continued momentum in the business, Advertising & Publishing revenue
grew in the first quarter of 2006. Revenue was $506 million, up 3 percent
compared to the same quarter of 2005 driven by growth in both print and online
advertising services. Operating margins remained strong at 44.7 percent for the
first quarter of 2006.

Normalizing Items

For the first quarter of 2006, the difference between reported (GAAP) EPS from
continuing operations and normalized EPS is shown in the following table. A
full income statement reconciliation is included in the attached exhibits.

1Q06

GAAP Diluted EPS - Income from continuing operations $0.43

Hurricane Katrina-related expenses $0.03
Wireless merger integration costs $0.03
Wireless merger intangible amortization $0.05

Normalized Diluted EPS - Income from continuing operations $0.54

Hurricane Katrina-related expenses - Represents incremental labor and material
costs primarily related to service restoration and network repairs in
BellSouth's wireline business. These expenses have been reduced by partial
insurance recoveries during the first quarter.

Wireless merger integration costs - Represents BellSouth's 40 percent share of
wireless merger integration costs incurred in connection with the Cingular/AT&T
Wireless merger. Integration costs include one-time cash outlays or specified
non-cash charges, including accelerated depreciation, directly related to
rationalization of the wireless network, sales distribution channels, the
workforce, information technology systems and real estate.

Wireless merger intangible amortization - Represents BellSouth's 40 percent
share of the non-cash amortization of intangibles, primarily customer lists,
that were created in Cingular's acquisition of AT&T Wireless.

About BellSouth Corporation

BellSouth Corporation is a Fortune 500 communications company headquartered in
Atlanta, Georgia. BellSouth has joint control and 40 percent ownership of
Cingular Wireless, the nation's largest wireless voice and data provider with
55.8 million customers.

Backed by award-winning customer service, BellSouth offers the most
comprehensive and innovative package of voice and data services available in the
market. Through BellSouth Answers(R), residential and small business customers
can bundle their local and long distance service with dial-up and high-speed DSL
Internet access, satellite television and Cingular(R) Wireless service. For
businesses, BellSouth provides secure, reliable local and long distance voice
and data networking solutions. BellSouth also offers print and online directory
advertising through The Real Yellow Pages(R) and YELLOWPAGES.COM (TM) from
BellSouth.

BellSouth believes that diversity and fostering an inclusive environment are
critical in maintaining a competitive advantage in today's global marketplace.
More information about BellSouth can be found at http://www.bellsouth.com.
Investor information can be found at http://www.bellsouth.com/investor.

Further information about BellSouth and Cingular's first quarter earnings can be
accessed at www.bellsouth.com/investor. The press release, financial statements
and Investor News summarizing highlights of the quarter are available at
www.bellsouth.com/investor starting today at 8 a.m. Eastern Time (ET).

BellSouth will host a conference call with investors today at 10 a.m. (ET).

Dial-in information for the conference call is as follows:
Domestic: 888-370-1863
International: 706-634-1735

The conference call will also be webcast live beginning at 10 a.m. (ET) on our
Web site at www.bellsouth.com/investor. The webcast will be archived on our Web
site.

A replay of the call will be available through April 27, 2006, and can be
accessed by dialing:

Domestic: 800-642-1687 - Conference ID: 7031218
International: 706-645-9291 - Conference ID: 7031218

For More Information Contact:

Brent Fowler, Media Relations at 404-249-2839
BellSouth Investor Relations at 800-241-3419

In addition to historical information, this document may contain forward-looking
statements regarding events and financial trends. Factors that could affect our
future results and could cause our actual results to differ materially from
those expressed or implied in the forward-looking statements include: (i) a
change in economic conditions in markets where we operate or have material
investments which would affect demand for our services; (ii) the intensity of
competitive activity and its resulting impact on pricing strategies and new
product offerings; (iii) higher than anticipated cash requirements for
investments, new business initiatives and acquisitions; (iv) unfavorable
regulatory actions and (v) those factors contained in the Company's periodic
reports.

Factors that could prevent or delay completion of the proposed merger with AT&T,
could affect the future results of the merged company and could cause the merged
company's actual results to differ from those expressed in the forward-looking
statements include: (i) our and AT&T's ability to obtain governmental approvals
of the proposed merger on the proposed terms and contemplated schedule; (ii) the
failure of AT&T shareholders to approve the issuance of AT&T common shares in
the merger or the failure of our shareholders to approve the merger; (iii) the
risk that the businesses of AT&T and BellSouth will not be integrated
successfully or as quickly as expected; (iv) the risk that the cost savings and
any other synergies from the merger, including any savings and other synergies
relating to the resulting sole ownership of Cingular Wireless LLC, may not be
fully realized or may take longer to realize than expected; (v) disruption from
the merger making it more difficult to maintain relationships with customers,
employees or suppliers; and (vi) those factors contained in the preliminary
proxy statement relating to the proposed merger filed with the SEC.

The forward-looking information in this document is given as of this date only,
and BellSouth assumes no duty to update this information.

This document may also contain certain non-GAAP financial measures. The most
directly comparable GAAP financial measures, and a full reconciliation of
non-GAAP to GAAP financial information, are attached hereto and provided on the
Company's investor relations website, www.bellsouth.com/investor.

NOTE: In connection with the proposed merger, AT&T Inc. ("AT&T") filed a
registration statement on Form S-4 (Registration No. 333-132904), containing a
joint proxy statement/prospectus of AT&T and BellSouth Corporation
("BellSouth"), with the Securities and Exchange Commission (the "SEC") on March
31, 2006. Investors are urged to read the registration statement and the joint
proxy statement/prospectus contained therein (including all amendments and
supplements to it) because it contains important information. Investors may
obtain free copies of the registration statement and joint proxy
statement/prospectus, as well as other filings containing information about AT&T
and BellSouth, without charge, at the SEC's Web site ( www.sec.gov). Copies of
AT&T's filings may also be obtained without charge from AT&T at AT&T's Web site
( www.att.com) or by directing a request to AT&T Inc. Stockholder Services, 175
E. Houston, San Antonio, Texas 78205. Copies of BellSouth's filings may be
obtained without charge from BellSouth at BellSouth's Web site
(www.bellsouth.com) or by directing a request to BellSouth at Investor
Relations, 1155 Peachtree Street, N.E., Atlanta, Georgia 30309.

AT&T, BellSouth and their respective directors and executive officers and other
members of management and employees are potential participants in the
solicitation of proxies in respect of the proposed merger. Information regarding
AT&T's directors and executive officers is available in AT&T's 2005 Annual
Report on Form 10-K filed with the SEC on March 1, 2006 and AT&T's proxy
statement for its 2006 annual meeting of stockholders, filed with the SEC on
March 10, 2006, and information regarding BellSouth's directors and executive
officers is available in BellSouth's 2005 Annual Report on Form 10-K filed with
the SEC on February 28, 2006 and BellSouth's proxy statement for its 2006 annual
meeting of shareholders, filed with the SEC on March 3, 2006. Additional
information regarding the interests of such potential participants is included
in the registration statement and joint proxy statement/prospectus contained
therein, and other relevant documents filed with the SEC.

This information is provided by RNS
The company news service from the London Stock Exchange
END

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