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IRVING, Texas. -- GTE Corp. announced its fourth quarter 1998 financial results, reporting earnings per share (EPS) from consolidated operations of 88 cents, on net income of $855 million, an increase of 21 percent over the year-ago quarter. During the quarter, consolidated revenues and sales were $6.8 billion, compared with $6.3 billion in the fourth quarter of 1997, an increase of 8 percent. Excluding the effects of the previously announced data initiatives, core EPS in the fourth quarter was 97 cents, a 10 percent increase over the year-ago quarter, representing the 14th consecutive quarter of double-digit core EPS growth.
Consolidated income for the full year 1998 was $2,974 million, or $3.07 per share, excluding the effects of the previously announced, non-recurring charges of $802 million, compared with income of $2,794 million, or $2.90 per share, in 1997. Including the non-recurring charges, GTEs reported net income for 1998 was $2,172 million, or $2.24 per share. For the full year 1998, GTE revenues grew 10 percent to $25.5 billion.
GTE Chairman and CEO Charles R. Lee said, "In an environment marked by regulatory uncertainty and increasing competition, we continue to meet our objectives for profitable growth. I am pleased with what our team accomplished in 1998.
"Domestically, we continued to profitably grow our core wireline and wireless operations; we aggressively grew our data business while reducing its dilutive earnings impact; we completed more than two thirds of our 17,000-mile fiber-optic network and began carrying our own data and long-distance traffic; and we continued to sharpen our strategic focus through the planned divestiture of non-strategic assets."
"Internationally, we continued to improve the profitability of our operations and grow our asset base by purchasing a significant equity interest in the Puerto Rico Telephone Company; increasing our ownership in CTI Holdings, our wireless operation in Argentina, to a controlling interest; and gaining a stake as a national full-service provider in Canada through the merger of our BC TELECOM operation with TELUS.
"These accomplishments in 1998 increased shareholder value and positioned the company for continued excellent growth and returns in 1999," Mr. Lee said.
GTEs consolidated revenues for 1998 grew $2.2 billion over 1997. Major contributors to this revenue growth include:
- Domestic access line growth of 1.9 million, or 9 percent, including 5 percent growth in switched access lines;
- Domestic access minutes of use growth of 8.9 billion minutes, or 11 percent;
- Revenue growth of $108 million, or 18 percent, from wireline value-added services such as call waiting, Caller ID and voice messaging;
- Long-distance revenue growth of $280 million, or 88 percent;
- Total data revenues as reported of $1,747 million in 1998 compared to $968 million in 1997. Adjusting for the acquisition of BBN Corp., which occurred in the second quarter of 1997, full-year pro-forma data revenue growth was approximately 55 percent;
- Continued domestic customer growth, including:
Total as of 12/31/98
Dial-up Internet access subscribers
- International revenue growth for the year of $533 million, or 18 percent, normalized for unfavorable foreign exchange rates and the impact of consolidating CTI.
Consolidated operating income for the full year 1998, excluding special charges reported during the first quarter, was $480 million or 9 percent higher than in 1997. The annual increase resulted from national and international core revenue growth as well as the continuing effects of productivity enhancements. Partially offsetting these increases were continuing investments in new growth opportunities, including start-up costs associated with the data initiatives and our competitive local exchange company (CLEC), and for customer-acquisition costs in the long-distance and digital PCS wireless markets. Consolidated operating income in the fourth quarter of $1,662 million was $290 million, or 21 percent, higher than in the year-ago quarter, even as GTE continued to make critical investments targeted at high-growth segments of the market.
Mr. Lee said, "For the past two years, our core businesses have consistently produced strong earnings growth while we have slowed our consolidated EPS growth by investing in the future. Spending on these growth initiatives peaked in 1998 and has since begun to decline. As GTE turns the corner on this dilutive period, were building on the continued strength of our traditional operations, coupled with our new initiatives, to ensure that we have the best long-term growth profile among our peers with anticipated EPS growth of 13 to 15 percent in 1999 and beyond. Today, GTE has the most comprehensive set of products and capabilities in our industry as well as significant financial resources, positioning us to capture new opportunities for investors for years to come."
For the year, GTEs national operations increased revenues by $1,867 million, or 9 percent, and operating income (excluding special charges) by $386 million, or 8 percent, over the prior year. The major business segments generating these results include:
Network Services revenues for the year grew $639 million, or 4 percent, to $15 billion. Traditional network data businesses, such as T-1 connections, DS-1s and DS-3s, as well as enhanced data products, which include ISDN and CyberPOPSM, generated revenue growth of $274 million, or 40 percent. Revenues from value-added services such as call waiting, Caller ID and voice messaging grew $108 million, or 18 percent.
GTE continues to offer new products and services, including one of the largest deployments of ADSL, which provides customers with ultrafast Internet access. Currently, ADSL service is offered in 16 states and deployed in 333 central offices. Further, as of year-end, more than 80 content providers were offering GTEs ADSL services to their end users.
Revenues were also driven by a 9 percent growth in access lines, including 385,000 residential lines, 459,000 business lines and 1.1 million special lines. Since the Telecommunications Act was passed in 1996, GTE has lost approximately 85,000 of its 23.5 million access lines to resale by other companies. Partially offsetting revenue increases were approximately $300 million in mandated federal and state price reductions, as well as the impact of intraLATA toll competition.
Operating income, excluding special charges, increased $262 million, or 6 percent, for the year. This was due to increases in revenues, partially offset by costs incurred to enhance customer service and those mandated by regulators to develop wholesale capabilities for local service.
Wireless Products and Services
Domestic wireless service revenues for the year were $2.7 billion, an increase of $138 million, or 5 percent, from a year-ago. Operating results for 1998 reflect profitable growth by focusing on higher-value customers and a value-based marketing strategy. An example of this strategy is FamilyNetSM, which promotes communications among family members by combining attractive mobile-to-mobile pricing and pagers for teenagers, all on one easy-to-read bill. Improvements in equipment subsidies and continuous evaluations of retail distribution-point profitability have contributed to a 17 percent reduction in cash operating expenses per customer per month compared with the prior year. Revenues per customer per month remained steady throughout the year, despite competitive pressures on pricing, resulting in an improvement in operating cash flow margin of over 500 basis points or a 25 percent improvement in operating margin per customer.
Data Products and Services
GTE Internetworking generated total revenues for the year of $784 million, compared with $279 million in 1997. Normalizing for the mid-year purchase of BBN in 1997, the revenue growth rate at GTE Internetworking was approximately 60 percent. This does not include revenues from traditional network data businesses, such as T-1 connections and ISDN dedicated access, which continue to be reflected in the Network Services operations. Total data revenues, including both GTE Internetworking and Network Services, were $1,747 million in 1998, compared with $968 million in 1997. Total data revenue growth for the year, normalizing for the mid-year purchase of BBN in 1997, was approximately 55 percent.
In the consumer market, GTE.net continued to grow into a top national consumer Internet Service Provider (ISP). During 1998, the number of users more than tripled over the previous year, primarily due to distribution relationships with computer manufacturers such as Compaq, Hewlett-Packard Company, Dell Computer, Sony Electronics Inc. and Acer. These channels have expanded GTEs ability to acquire customers on a national basis, enabling the company to average more than 60,000 new promotional users per week in recent months.
In the business market, GTEs portfolio of business services resulted in new sales and additional customers, including contracts with Excel Communications, Cabletron, and Computer Sciences Corporation . During the year, GTE expanded its business service offerings to include E-Commerce Hosting, Virtual Private Networks, Global Remote Access, and Digital Certificates. This week, GTE launched a new "next generation" Internet Protocol service called IP Fax. This Internet-based fax service increases organizational productivity and efficiency by providing increased security and ease of use over traditional fax services.
GTEs national fiber network build-out is continuing on schedule, with more than two thirds of the planned 17,000-mile network activated. Known as the Global Network Infrastructure (GNI), this private network enables high-speed, secure transport services for both retail and wholesale customers. GTE is migrating both data and voice traffic currently carried on leased facilities to its own GNI. GTE also made investments in undersea cable to expand the reach of the network into Europe, Asia and Latin America. During the year, GTE sold access and transport services to other ISPs and carriers, and expanded its relationship with America Online (AOL), for which GTE provides national network deployment services in support of AOLs dial-up network.
Operating losses associated with GTEs data initiatives were $526 million for the year, compared with $347 million in 1997; and $104 million for the quarter, compared with $215 million in the year-ago quarter, reflecting higher revenues in 1998 and lower costs due to start-up expenses in 1997.
Other National Operations
Revenue growth at GTE Communications, which includes our CLEC, long-distance, video and strategic accounts initiatives, was $433 million, or 69 percent, for the year. Long-distance operations grew $280 million, or 88 percent, due to a 59 percent increase in the number of customers, and resulting in market share increases in GTE's franchised territories. GTE ended the year with over 2.7 million long-distance customers. GTE's CLEC, now operating in eight states, generated revenue growth by providing bundled local, long-distance, wireless, paging, and Internet services in a "one-stop shopping" environment and served 86,000 customers at year end.
Consolidated international operations in 1998 contributed $3.3 billion in annual revenues, achieving growth of $432 million, or 15 percent, over the prior year. This growth was generated by proportionate wireless customer growth of 88 percent and favorable rate re-balancing, as well as new long-distance revenue settlement arrangements in our Canadian operations. Partially offsetting this revenue growth was approximately $200 million of reductions due to unfavorable foreign exchange rates.
Starting in the fourth quarter of 1998, as a result of its increased ownership, GTE consolidated its investment in CTI, our international joint venture in Argentina. Normalizing for both the unfavorable foreign exchange rates and the impact of consolidating the Argentine cellular business, revenue growth for the year would have been $533 million, or 18 percent.
International net income for 1998, excluding special and extraordinary charges, was $441 million, 20 percent higher than a year ago, primarily reflecting strong wireless volume growth driven by significant customer expansion in the Canadian and Latin American operations. The number of wireless customers from unconsolidated investments more than doubled over the last 12 months, providing a solid base for current and prospective results.
Mr. Lee said, "Our international operations have exceeded expectations and continue to be a positive contributor to GTEs overall EPS growth. We see significant opportunity for further growth."
With 1998 revenues of more than $25 billion, GTE is one of the worlds largest telecommunications companies and a leading provider of integrated telecommunications services. In the United States, GTE provides local service in 28 states and wireless service in 17 states; nationwide long-distance service and internetworking services ranging from dial-up Internet access for residential and small business consumers to Web-based applications for Fortune 500 companies; as well as video service in selected markets.
Outside the United States, the company serves nearly 9 million telecommunications customers. In addition, GTE is also a leader in government and defense communications systems and equipment, directories and telecommunications-based information services, and aircraft-passenger telecommunications.
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Note: All references noted 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 www.gte.com
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 GTEs assumptions, actual results could vary significantly from the performance projected in these forward-looking statements.
The following important factors could affect the future results of GTE, and could cause these results to differ materially from those expressed in this announcement: materially adverse changes in economic conditions; material changes in available technology; the final resolution of certain federal, state and local regulatory initiatives and proceedings pertaining to, among other matters, the terms of interconnection, access charges, universal service, unbundled network elements and resale rates; the effects of competition in GTEs markets; the success of GTEs efforts in achieving year 2000 compliance; the timing of, and regulatory and other conditions associated with, the completion of the merger with Bell Atlantic; and the success of GTEs efforts to provide a bundle of products and services through GTEs CLEC.
GTEs Report on Form 10-Q for the quarter ended September 30, 1998 discusses in greater detail the important factors that could cause its actual results to differ materially.