04.27.2000|Corporate

GTE Delivers Strong First Quarter Revenue Growth of 10

IRVING, Texas -- GTE Corporation announced first quarter 2000 results with net income of $796 million and earnings per share (EPS) of 82 cents, an increase of 11 percent over the year-ago quarter, excluding special and extraordinary items that favorably affected both periods. Consolidated revenue increased 10 percent to $6.1 billion from adjusted revenue of $5.6 billion in the first quarter of 1999.

"GTE continued to produce strong results in the first quarter, even as we took steps to increase our long-term growth potential," said GTE Chairman and CEO Charles R. Lee. "Our core operations continue to produce solid results, allowing us to invest in higher-growth opportunities. As a result we experienced significant growth in our data, wireless and long-distance businesses as well as in bundled offerings.

"The last three months also included important milestones related to our upcoming merger with Bell Atlantic, which we are targeting for later this quarter. In March, Verizon Wireless was launched, combining the wireless assets and capabilities of Bell Atlantic Mobile, AirTouch Cellular, PrimeCo Personal Communications and AirTouch Paging. After our merger with Bell Atlantic, we will add GTE's cellular and PCS properties, completing the creation of the premier wireless company in the U.S.

"Other recent actions include our selection of Verizon as the new name for the combined GTE-Bell Atlantic, contingent on FCC approval of our merger, and renaming GTE Internetworking 'Genuity' as that business moves forward with its initial public offering.

"The overall objective of our combined companies is to have the industry's most complete and advanced portfolio of assets, capable of satisfying the needs of communications customers on a global basis while being poised to become the premier company taking advantage of growth opportunities in this very dynamic market," Lee said.

Including special and extraordinary items, reported EPS was 83 cents in the quarter compared to 90 cents in the same quarter last year. This year's first quarter includes: an after-tax net gain of $20 million, or 2 cents per share, comprised of the gain on the sale of CyberTrust, a small unit specializing in network security, partially offset by the write-down of certain impaired assets; and an after-tax extraordinary charge of $9 million, or 1 cent per share, for the retirement of debt prior to stated maturity for the Network Services access lines that will be sold. The first quarter of 1999 included special and extraordinary items that generated a net increase in EPS of 16 cents per share. These items included an after-tax gain of $308 million, or 31 cents per share, associated with the merger of BC TELECOM and TELUS; an after-tax special charge of $119 million, or 12 cents per share, for employee separation programs completed in April 1999; and an after-tax extraordinary charge of $30 million, or 3 cents per share, for the retirement of debt prior to stated maturity.

Consolidated Results

GTE's consolidated revenue in the first quarter grew $544 million, or 10 percent, over revenue in the first quarter of 1999, adjusted for the 1999 sale of Government Systems. Major contributors to this revenue growth include:

  • 30 percent, or $253 million, growth in domestic wireless revenue, which includes the newly acquired wireless properties;
  • 53 percent, or $87 million, growth in data services revenue from Genuity, formerly GTE Internetworking;
  • 28 percent, or $84 million, growth in Network Services data revenue, including special access data lines, ISDN and DSL;
  • 32 percent, or $59 million, growth in long-distance revenue;
  • 246 percent, or $51 million, growth in CLEC bundled offerings;
  • 79 percent revenue growth in SuperPages.com, GTE's internet directories business;
  • Continued customer growth, including:

Total as of
3/31/00

Increase over
last 12 months

Percent
Increase

Global access lines*

29,927,000

2,574,000

9 %

Global wireless customers*

9,471,000

3,364,000

55 %

Long distance

3,508,000

663,000

23 %

CLEC bundles

365,000

257,000

238 %

DSL

88,000

76,000

633 %

SuperPages.com

52,000

20,000

63 %


*
Represents domestic totals plus international proportionate access lines and wireless customers.
All other statistics U.S. only.

In the quarter, consolidated adjusted operating income was $1.5 billion, an increase of $207 million, or 15 percent, over the same quarter last year. This increase resulted from revenue growth and favorable pension settlements, partially offset by losses from GTE's continuing investments in its data and CLEC initiatives.

Network Services

Revenue in the first quarter was $3.8 billion, an increase of $114 million, or 3 percent, from the same quarter last year. The increase was due to growth in access lines, minutes of use, data and vertical services, partially offset by mandated price reductions and intraLATA toll erosion. Over the past year, total access lines grew 11 percent, driven by special access line growth of 37 percent and business switched access line growth of 7 percent. The strong growth in access lines reflects the continuing strong economic health of the company's wireline markets. Access minutes of use increased 5 percent compared to the same quarter last year.

Data revenue in the first quarter of $389 million increased $84 million, or 28 percent, from the first quarter last year. Data revenue includes special access data lines, frame relay, CyberPOPSM and DSL.

At the end of the first quarter, the company had obtained 88,000 DSL subscribers through an aggressive marketing campaign and a competitively priced offering. To meet the growing demand for this popular service, the company began shipping modems and self-installation kits directly to customers. In addition to providing customers with quick installation and access to the Internet, this offering saves the expense of sending a technician to the customer's premise. DSL is currently available from 650 central offices, representing approximately 7 million qualified lines, or approximately 33 percent of the company's total switched access lines.

Network Services data revenue does not include data revenue from Genuity and other unrelated business units. Combined data revenues from all business units grew 32 percent from the year-ago quarter to $711 million, providing annualized data revenue of $2.8 billion.

Through successful promotions, consumer vertical service units increased 4.6 million, generating additional revenue of $18 million, or 12 percent, from the same quarter last year. In April, Network Services introduced a new sales initiative known as the 'Big Deal' that offers customers package-discounts when they combine local and vertical services. Customers can include long-distance, voice mail and dial-up Internet access in their package to receive additional discounts.

Offsetting the revenue increases were mandated federal and state price reductions of $53 million in the quarter and $278 million over the past 12 months. Although toll revenue has decreased from intraLATA toll competition, the decline is lessening. Within the local market, approximately 480,000 of the company's 26.7 million domestic access lines have been lost to resale. However, losses to GTE amount to less than 1 percent of the total lines, since most of these were resold through GTE's CLEC.

Network Services operating income in the first quarter was $1.4 billion, an increase of $168 million, or 14 percent, from the same quarter last year. This improvement was principally due to revenue growth, the impact of workforce reductions taken in 1999 and favorable pension settlements, partially offset by rapid growth in access lines, DSL and other cost of service increases.

Wireless

Domestic wireless revenue in the first quarter was $1.1 billion, an increase of $253 million, or 30 percent, from the same quarter last year, including the benefit of the acquisition of wireless properties from Ameritech in the fourth quarter of 1999. Subscribers grew 52 percent, including the newly acquired properties. Excluding these new properties, subscriber growth of 16 percent was achieved from an increase in prepaid customers and favorable customer response to the GTE CHOICESM pricing plans, which were introduced a year ago. The GTE CHOICE plans, which offer bundled minute pricing with expanded roaming options, have positioned the company in anticipation of becoming part of the Verizon Wireless venture with Bell Atlantic and Vodafone AirTouch.

Continuing productivity and process improvements have decreased monthly cash operating expense per customer to $22, a 19 percent reduction from the first quarter of 1999. Although revenue growth and cash operating expense show significant improvement, the GTE CHOICE pricing plans have increased roaming expenses. As a result, operating cash flow margin decreased to 34 percent in the first quarter from 39 percent in the year-ago quarter. GTE expects roaming costs for its customers to decline due to the recent re-negotiation of roaming agreements and the distribution of approximately 220,000 next-generation handsets that permit remote roaming partner selection.

Genuity (formerly GTE Internetworking)

Genuity revenues of $250 million in the first quarter increased $87 million, or 53 percent, from the first quarter of 1999. Revenue from access services, which include domestic dial-up, dedicated and broadband access, increased 43 percent over the first quarter of last year and contributed approximately two-thirds of the revenue growth. The increase in revenues reflects an 80 percent growth in activated modems and a 24 percent increase in dedicated customer connections. In February 2000, Genuity and America Online (AOL) announced that they had reached a multi-year agreement to extend Genuity's existing role in providing dial-up and broadband backbone Internet services to AOL in the United States. In addition, Genuity will operate and continue the build-out of a portion of AOL's dial-up network in Japan.

Web hosting revenues increased $12 million, or 117 percent, from the same quarter last year, driven by an increase in Web hosting customers. Also contributing to this growth was a 45 percent increase in transport services and revenues from value-added e-business services, such as Site Patrol (a managed security offering), Virtual Private Network, Voice-over-IP and international connectivity, which more than doubled from the same quarter last year.

Operating losses from Genuity increased to $197 million in the first quarter due to continued network capacity expenditures, higher depreciation expense and selling and distribution expenses.

Communications Corporation

GTE Communications, which includes long-distance, CLEC and large business accounts, generated revenue in the first quarter of $429 million, an increase of $88 million, or 26 percent, from the same quarter last year. This revenue growth was driven in part by a 23 percent increase in the number of long-distance customers over the past 12 months, ending the quarter with 3.5 million customers. GTE's CLEC, which is the largest residential CLEC in the nation, grew its customer base 238 percent over the past 12 months to 365,000 customers at the end of the first quarter.

International

International proportionate revenues grew to nearly $1 billion in the quarter, an increase of $161 million, or 20 percent, from the same quarter last year. GTE's operations in Puerto Rico, Canada, the Dominican Republic and Taiwan contributed to this increase. Proportionate wireless customers increased 69 percent from last year due to the rapid growth of the Taiwan wireless market and strong demand for prepaid wireless services in Latin America.

Net income from international operations in the first quarter was $131 million, consistent with net income in the same quarter last year. Higher income from GTE's investment in Puerto Rico and improved results from operations in the Dominican Republic were offset by start-up costs for the Buenos Aires PCS wireless network and lower results at operations in South America.

On March 31, TELUS announced its plan to acquire 70 percent of QuebecTel. GTE currently owns approximately 27 percent of TELUS and 51 percent of QuebecTel. Under the proposed transaction, TELUS would acquire 49 percent of QuebecTel from the public minority shareholders and 21 percent from GTE. Following the transaction, TELUS and GTE would own 70 percent and 30 percent of QuebecTel, respectively.

About GTE

With 1999 revenues of more than $25 billion, GTE is a leading telecommunications provider with one of the industry's broadest arrays of products and services. In the United States, GTE provides local service in 28 states and wireless service in 18 states, as well as nationwide long-distance, directory, and internetworking services ranging from dial-up Internet access for residential and small-business consumers to Web-based applications for Fortune 500 companies. Outside the United States, the company serves customers on five continents. Additional information about GTE can be obtained at http://www.gte.com/.

GTE's community and philanthropic programs target excellence in education, particularly math, science, technology and literacy. GTE also supports job training, delivery of health and human services, and the arts. The company's newest program is GTE Reads, a public charity designed to create public awareness, increase fundraising and support organizations dedicated to improving America's literacy levels. GTE customers can contribute to GTE Reads by checking off a box on their bill. Others can contribute through GTE SuperPages.com (http://www.superpages.com/).

# # #

Note: All references above to earnings per share (EPS) reflect diluted earnings per share.

A copy of this release and associated tables can be found on the Internet at http://www.gte.com/aboutgte/investor/1q2000/1q.html.

Forward-Looking Statements

This announcement contains forward-looking statements. For each of these statements, GTE claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. If future events and actual performance differ materially from GTE's assumptions, actual results could vary significantly from the performance projected in these forward-looking statements.

The following important factors could affect future results and could cause those results to differ materially from those expressed in this announcement: materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; material changes in available technology; the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, universal service, and unbundled network element and resale rates; the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; the success of our efforts to expand service capability in the data communication, long-distance and enhanced services segments of the telecommunications marketplace and to provide a bundle of products and services both in and outside of its traditional service territories; the timing of, and regulatory or other conditions associated with, the completion of our merger with Bell Atlantic and our ability to combine operations and obtain revenue enhancements and cost savings following the merger; and the ability of Verizon Wireless to combine operations and obtain revenue enhancements and cost savings.

GTE's Annual Report on Form 10-K for the year ended December 31, 1999 discusses in greater detail the important factors that could cause its actual results to differ materially.

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