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BellSouth Corp.
404-249-2000
1155
Peachtree Street, N.E., Room 15G03
Atlanta, Georgia 30309
www.bellsouth.com
Sales
$22.6
billion
Business Description
BellSouth Corp. is a Fortune 100 communications services company
headquartered in Atlanta, Georgia. We and our affiliates serve over 45
million local, long distance, Internet and wireless customers in the United
States and 13 other countries. We provide an array of voice, broadband data
and e-commerce solutions to business customers. In the residential market,
we offer digital subscriber line (DSL) high-speed Internet access, advanced
voice features and other services. We also provide online and directory
advertising services, including BellSouth® Real PagesSM.com. We own
approximately 40 percent of Cingular Wireless (Cingular), the nation’s
second largest wireless company in terms of customers, which provides
wireless voice and data services. With one of the largest shareholder bases
in America, we have assets of $50 billion and employ almost 76,000
individuals.
We were incorporated and became a publicly traded company in December 1983
as a result of the breakup of the Bell System. The breakup also created
several other local exchange companies, which are referred to as Baby Bells
in this document. From January 1984 through February 1996, the services that
we and the other Baby Bells could offer were governed by the terms of the
1982 settlement of the antitrust suit that led to the breakup of the Bell
System. Under the terms of that settlement, we could provide local exchange,
network access, information access (such as data transport) and long
distance telecommunications services within assigned geographical
territories, termed Local Access and Transport Areas (LATAs). Although
prohibited from providing wireline service between LATAs, we were allowed to
provide network access services that linked our customers’ telephone or
other equipment in one of our LATAs to the transmission facilities of other,
nonaffiliated carriers. This resulted in the availability of
telecommunications services between LATAs.
The Telecommunications Act of 1996 superseded the governing terms of the
1982 settlement and provided for the development of competition in local
telecommunications markets and the conditions under which the Baby Bells can
provide interLATA wireline telecommunications and other services. Our
ability to offer the services previously proscribed to us by the terms of
the 1982 settlement, including the provision of interLATA long distance
services, is subject to compliance with the Telecommunications Act of 1996
and the regulations of the Federal Communications Commission (FCC). During
2002, we received FCC permission to provide interLATA long distance services
in each of the nine southeastern states that we serve.
We are subject to increasing competition in all areas of our business.
Regulatory, legislative and judicial actions and technological developments
have expanded the types of available services and products and the number of
companies that may offer them. Increasingly, this competition is from large
companies as well as small, specialized companies and joint ventures that
have substantial capital, technological and marketing resources and are
subject to fewer regulatory constraints.
We have four operating segments that are the focus of our business:
• Communications Group;
• Domestic Wireless;
• Latin America Group; and
• Advertising and Publishing Group.
Communications Group
OVERVIEW
We are the predominant telecommunications service provider in the
southeastern US, serving substantial portions of the population within
Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina and Tennessee. BellSouth Telecommunications, Inc. (BST), a
wholly owned subsidiary, provides wireline communications services,
including local exchange, network access, intraLATA long distance services
and Internet services. BellSouth Long Distance (BSLD), our long distance
subsidiary, provides intraLATA and interLATA long distance services in our
nine southeastern states, wholesale long distance primarily to wireless
communications providers, smaller wireline telecommunications providers and
unaffiliated long distance providers, and prepaid calling card services
through agreements with unaffiliated long distance providers. Communications
Group operations generated 81% of our total operating revenues for 2003 and
2002 and 79% for 2001.
While we provide telecommunications service to the majority of the
metropolitan areas in our region, there are many localities and sizable
geographic areas within the region that are served by nonaffiliated
telecommunications carriers. In addition, there is increasing competition
within our territory from other telecommunications carriers, long distance
carriers, cable television operators, voice over Internet protocol (VoIP)
providers and wireless carriers. We have organized our marketing efforts to
parallel our major customer bases: consumer, small business, large business,
and interconnection services.
Consumer. This unit serves the largest segment of the market within our
region, the residential customer. While traditional local and long distance
telephone service remains the core of this market, customer demands are
rapidly broadening to include an expanded range of services, from
convenience features such as caller ID, call forwarding and voice mail, to
dial-up access to the Internet, high-speed DSL and video services. During
2003, the consumer unit represented 43% of Communications Group revenues.
Small Business. This unit focuses on providing, in addition to traditional
local and long distance voice services, advanced voice, data, Internet and
networking solutions to small and medium-sized businesses. It offers a full
selection of standard and customized communications services to this market.
During 2003, the small business unit represented 12% of Communications Group
revenues.
Large Business. This unit provides a wide range of standard and highly
specialized services and products to large and complex business customers.
In addition to traditional local and long distance voice services, product
and service offerings to these customers include Internet access, private
networks, high-speed data equipment and transmission, conferencing and
industry specific communications arrangements for industries such as
banking, healthcare and manufacturing. During 2003, the large business unit
represented 18% of Communications Group revenues.
Interconnection Services. This unit provides interconnection to our network
and other related wholesale services to telecommunications carriers for use
in providing services to their customers. Interconnection refers to the link
between our telecommunications network and the telecommunications network of
other telecommunications carriers, such as AT&T, Sprint, MCI (formerly known
as WorldCom) and other long distance and competitive local exchange
carriers. In addition to interconnection services, we provide services such
as voice and data transport services. During 2003, the interconnection
services unit represented 24% of Communications Group revenue and generated
48% of our reported data revenues. The unit provides services to both
affiliated and nonaffiliated customers in six different carrier markets:
wireless service providers, competitive local exchange carriers, competitive
switched and special access providers, long distance carriers, information
service providers and public payphone service providers.
BUSINESS STRATEGY
Our business strategy is to solidify BellSouth as the leading choice of
customers in the southeast for an expanding array of voice, data and
Internet services and to meet our customers’ needs through teaming or
wholesale service arrangements with other companies.
We intend to:
• optimize our portfolio of retail and wholesale products and services by
utilizing marketing approaches targeted to our different customer segments,
by providing superior service and by offering flexible packages of voice,
data and multimedia applications through improved distribution channels and
systems;
• become the leading provider of local broadband/Internet Protocol (IP)
services in the southeast by deploying new broadband/IP platforms that
support both voice and data services as well as applications; and
• reduce our cost structure by managing the utilization of existing assets
and redirecting spending to focus new investment on high-growth products and
services.
BUSINESS OPERATIONS
VOICE SERVICES
Voice services include basic dial-tone telephone service and switching
services provided through the regular switched network. In addition, we
offer various standard convenience features, such as caller ID, call
waiting, call return and 3-way calling on a monthly subscription or for
some, on a per-use basis. Additional voice related revenues are derived from
charges for inside wire maintenance contracts, voice messaging services,
directory assistance and operator services. Voice revenues also include
amounts received from the universal service fund for support of high cost
areas.
We offer our voice services on a wholesale basis to other competitive local
carriers for resale to their customers. Competitors primarily utilize our
local network under two methods: resale and, to a greater extent, through
the use of unbundled network elements (UNEs). Lines provided on a resale
basis include all of the components necessary for a wholesale customer to
provide complete service delivery to an end-user. UNEs represent components
of our network that wholesale customers may combine with components of their
own networks, or with other UNEs purchased from us to allow complete service
delivery to an end-user.
We provide network access and interconnection services by connecting the
equipment and facilities of our customers with the communications networks
of long distance carriers, competitive switched and special access
providers, and wireless providers, including Cingular. Similarly, we provide
access and interconnection services to competitive local exchange carriers
so their subscribers can reach ours and vice versa. As a result of access
reform, the revenues that we derive from these services have diminished over
the past several years.
As described above in “Business – Overview”, BellSouth was historically
permitted to provide long distance services only within, but not between,
certain areas (referred to as LATAs) that were defined at the time of the
Bell System divestiture. Legislation was enacted in 1996 that allowed
BellSouth, upon approval by the Federal Communications Commission, to
provide interLATA services. BellSouth received that approval for all nine
states in its region during 2002. We were the first Baby Bell to receive
approval for all of its territory.
As a consequence of the long distance approval described above, BellSouth
has aggressively entered the interLATA long distance market in its nine
state region. BellSouth’s entry has addressed both the mass and complex
markets. On the mass market side, BellSouth offers a wide array of calling
plans to both its residential and business customers. Many of these long
distance offers have been packaged with the Company’s local, data and
wireless offerings so as to present a “bundle” of services to its customers.
These “bundles” allow customers to purchase services at prices lower than
they would have paid if they had bought the underlying services on a stand
alone basis. As of December 31, 2003, BellSouth has achieved a long distance
market penetration of 28% among its residential local customers and 39%
among its mass market business local customers.
Voice services provided approximately 56% of BellSouth’s total operating
revenues for 2003 and 2002 and 54% for 2001.
BROADBAND AND DATA SERVICES
As use of the Internet grows and as corporate data applications increase in
sophistication and scope, the market for broadband and data services is
expanding and evolving. BellSouth will continue to expand its capabilities
in order to maintain a leadership position in the broadband and data
communications market. Investment in service infrastructure is strategically
managed to enable delivery of services offering increasing capacity and
functionality. In parallel, we continue to use new advances in digital
technology to bolster the broadband capabilities of our entire network. The
emergence of high-performance broadband and digital infrastructure offers
the ability to use these networks for real-time communications including
voice and video using various technologies such as softswitches
(software-based switching platforms) and voice over Internet protocol (VoIP).
We offer a wide range of data services serving the retail as well as the
wholesale markets. Revenues from retail offerings such as FastAccess® (DSL),
ISDN, Frame Relay, Lightgate and SmartRing accounted for 51% of total data
revenues in 2003 while wholesale offerings accounted for the remaining 49%.
DSL service is an important broadband service for BellSouth. Over 70% of the
households in our franchises are qualified to receive DSL from BellSouth,
and we ended 2003 with over 1.46 million DSL subscribers. BellSouth
participates in the DSL market in two significant ways. We offer DSL
transport products to Internet service providers and other carriers, which,
in turn, provide information services, such as Internet access, to their end
users. We also offer our own retail DSL-based high speed Internet service
that we market under the name BellSouth® FastAccess® DSL.
We continue to deploy new DSL products with the introduction in 2003 of
FastAccess® DSL Lite, a new lower speed residential product that offers
download speeds up to 256 Kbps as compared to download speeds up to 1.5 Mbps
for standard FastAccess®. This new Lite product was designed to reach and
convert current dial Internet customers to broadband. We introduced
FastAccess® Lite at a monthly rate that was $10 less than standard
FastAccess®. In 2004, BellSouth expects to begin offering a higher speed
version of FastAccess® that will have download speeds of up to 3 Mbps. We
expect to be in a strong position to offer a full range of Internet access
products, ranging from dial-up access to 3 Mbps services that also include
many state of the art features such as Parental Controls and virus scanning.
Through a resale arrangement with Qwest Communications Corporation, we are
able to offer data services to meet the needs of sophisticated business
purchasers of long distance services. These complex services are offered to
enterprise business customers not just in our nine state region, but
throughout the United States.
Broadband and data services generated approximately 19% of BellSouth’s total
operating revenues for 2003 and 2002 and 17% for 2001.
OTHER COMMUNICATIONS GROUP REVENUES
Other Communications Group revenues are comprised primarily of charges for
billing and collection services for long distance carriers, enhanced white
pages listings, customer late payment fees and customer premises equipment
sales and maintenance services. Other revenue also includes charges for
permitting our competitors to set up their equipment in our facilities
(referred to as collocation). Historically, revenues from local payphone
services were included in this category. By the end of 2003, we had ceased
offering local payphone services through a separate subsidiary of BST. Due
to our gradual phase-out of the business, we do not expect any material
financial impact on results of operations with respect to exiting this
business. BellSouth also provides wholesale long distance services,
primarily to wireless communications providers and smaller wireline
telecommunications providers, as well as to unaffiliated long distance
providers, and we offer prepaid calling card services through agreements
with an unaffiliated long distance provider. Other Communications Group
services provided approximately 6% of BellSouth’s total operating revenues
for 2003 and 8% for 2002 and 2001.
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