3rd Quarter Results

RNS Number:9836K
Bellsouth Corp
24 October 2006

For Immediate Release

BellSouth Reports Third Quarter Earnings

* Continued growth in earnings per share
* DSL customers total 3.4 million
* Strong revenue growth and margins at Cingular
* Cingular customers total 58.7 million

ATLANTA, Oct. 24, 2006 - BellSouth Corporation (NYSE: BLS) announced third
quarter 2006 earnings per share (EPS) from continuing operations of 58 cents, up
31.8 percent compared to the third quarter of 2005. Normalized EPS from
continuing operations of 65 cents increased 27.5 percent compared to the third
quarter of 2005. A list of normalizing items is provided in the table below.

Normalized Results from Continuing Operations

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

Normalized operating income before depreciation and amortization (OIBDA) grew to
$3.6 billion representing a 40.1 percent OIBDA margin. Revenue growth and cost
containment drove OIBDA margin up 290 basis points year-over-year and 140 basis
points sequentially. Normalized revenue increased 5.4 percent year-over-year
driven by growth in wireless, wireline and yellow pages. Normalized revenues
were nearly $9.0 billion for the third quarter of 2006. Normalized net income
of $1.2 billion grew 25.8 percent compared to the third quarter of 2005.

Reported Results from Continuing Operations

For the third quarter of 2006, BellSouth's consolidated reported revenues from
continuing operations were $5.2 billion, up 2.9 percent compared to the same
quarter of 2005. Income from continuing operations was approximately $1.1
billion, up 29.6 percent compared to the same quarter of the previous year.

For the third quarter of 2006, operating free cash flow (defined as net cash
provided by operating activities less capital expenditures) was $976 million.
Capital expenditures for the quarter were $730 million, a decline compared to
the first and second quarters of 2006. Year-to-date capital expenditures were
$2.8 billion and included $265 million in expenditures for Hurricane Katrina
restoration efforts.

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 communications services. BellSouth and AT&T firmly believe that no
conditions on this merger are necessary for this combination to be a public
benefit. Nevertheless, in response to an inquiry from the Federal
Communications Commission staff, AT&T indicated that, in the interest of
facilitating the speediest possible approval of the merger, it would not object
to the imposition of certain merger conditions. The FCC has scheduled an open
meeting for Nov. 3, 2006 to consider the merger in the event the Commission has
not completed its review prior to that date.

Communications Group

In the third quarter of 2006, Communications Group revenues were $4.7 billion, a
2.4 percent increase over the third quarter of 2005. Adjusting for the one-time
customer credits of $44 million issued during the third quarter of 2005, revenue
growth was 1.4 percent. Revenue growth in mass-market broadband and long
distance services and growth in emerging data services offset revenue declines
from traditional access line services. Revenue growth, increased penetration in
broadband and long distance services and continued focus on cost containment
drove Communications Group operating margin to 25.7 percent, an increase of 340
basis points year-over-year and 80 basis points sequentially.

Network data revenues exceeded $1.3 billion, a 12.8 percent increase over the
third quarter of 2005, due to improvements in both retail and wholesale data
services. Retail data revenues grew 19.5 percent year-over-year driven by
retail DSL revenues and continued momentum from emerging retail data services.
Wholesale data revenues grew 3.3 percent as growth in wireless transport more
than offset declines in general transport services.

During the third quarter, BellSouth added 176,000 new DSL customers, reaching a
total of more than 3.4 million broadband DSL customers. The vast majority of
new customers chose BellSouth's higher speed offers -- FastAccess(R) DSL Xtreme
and FastAccess(R) DSL Xtreme 6.0. Year-over-year the average revenue per unit
on DSL was up slightly as improved customer mix offset revenue impacts from the
discontinuance of regulatory recovery fees.

BellSouth customers continued to choose more services and save with multiple
service discounts by adding long distance and DIRECTV(R) service to their
BellSouth Answers(R) bundles. During the third quarter, BellSouth added 118,000
long distance subscribers. At the end of the third quarter, BellSouth served
7.6 million long distance customers representing approximately 63 percent of its
mass-market customer base. Nearly 65,000 customers added DIRECTV(R) service to
their bundle, resulting in a total of 756,000 customers who included DIRECTV(R)
service in their BellSouth Answers(R) bundles.

As of Sept. 30, 2006, total access lines were 19.0 million down 6.9 percent
year-over-year. For the quarter, total access lines declined 301,000. Retail
residential access lines declined 135,000 reflecting losses to wireless
substitution and cable telephony service. Retail small business access line
gains were 20,000, offset by a decline in retail large business access lines of
13,000 lines. Wholesale lines declined 174,000 compared to June 30, 2006.

Cingular Wireless

Cingular Wireless was a significant contributor to BellSouth's results with
strong revenue growth and robust margin expansion. The nation's largest
wireless provider delivered strong customer growth, improved ARPU trends, and
completed the integration of its GSM network.

During the quarter, Cingular added 1.4 million new customers, totaling 58.7
million customers at the end of September. Postpaid customer additions were
928,000. Overall monthly churn for the quarter was 1.8 percent and postpaid
churn remained at 1.5 percent.

In the third quarter of 2006, Cingular's revenues were $9.6 billion, increasing
9.2 percent over the same quarter a year ago and up 3.6 percent sequentially.
Service revenues, which exclude revenues from sales of handsets and accessories,
were $8.7 billion up 12.2 percent year-over-year and 4.4 percent sequentially.

Cingular's average revenue per user (ARPU) was $49.76. This compares to $49.65
in the same quarter last year and $48.84 in the second quarter of 2006. ARPU
from data services continued its robust growth in the third quarter of 2006,
increasing 46.0 percent to $6.32 year-over-year and up 9.5 percent sequentially.

For the third quarter of 2006, Cingular accelerated its margin improvement
driven by operational improvements and successful merger integration activities.
Normalized operating income before depreciation and amortization (OIBDA)
margin was 35.6 percent, up 400 basis points compared to the third quarter of
2005 and up 300 basis points sequentially. This performance was driven by
revenue acceleration from customer growth and ARPU stabilization coupled with
operational and merger related synergies.

During the third quarter, Cingular completed its GSM network integration. With
45,000 cell sites around the country, customers benefit from improved coverage
and call quality while the company benefits from lower churn. In addition, the
company continued its aggressive deployment of 3G UMTS/HSDPA network throughout
the country. The 3G service is available in 115 cities (with populations of 100
thousand or more) in and around 52 major markets in 28 states and the District
of Columbia.

Advertising & Publishing

Advertising & Publishing maintained its momentum growing revenue 5.5 percent to
$537 million. Adjusting for one-time customer credits issued in the third
quarter 2005 for Hurricane Katrina, revenue growth was 4.1 percent. These
results reflect continued market penetration of online advertising and growth in
print advertising revenue. Operating margins were 45.6 percent for the third
quarter of 2006.

Normalizing Items

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

3Q06
GAAP Diluted EPS - Income from continuing operations $0.58

Wireless merger integration costs $0.02
Wireless merger intangible amortization $0.04
AT&T Merger Costs $0.01

Normalized Diluted EPS - Income from continuing operations $0.65

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.

AT&T Merger Costs - Represents specific deal-related costs directly associated
with the pending merger with AT&T. Costs include legal and regulatory fees,
costs of filing and printing the joint proxy statement and expense associated
with employee retention awards.
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
58.7 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.COMTM 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.

Further information about BellSouth and Cingular's third 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, www.bellsouth.com/investor. The webcast will be archived on our Web
site.

A replay of the call will be available through Oct. 31, 2006, and can be
accessed by dialing:

Domestic: 800-642-1687 - Conference ID: 7061516
International: 706-645-9291 - Conference ID: 7061516

For More Information Contact:
Brent Fowler, Media Relations, 404-249-2839
BellSouth Investor Relations, 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
risk that the businesses of AT&T and BellSouth will not be integrated
successfully or as quickly as expected; (iii) 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; (iv) disruption from
the merger making it more difficult to maintain relationships with customers,
employees or suppliers; and (v) those factors contained in the 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 web site, www.bellsouth.com/investor.

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

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