SBC Communications, Inc. -  Phone Service - Category Directory

Telephone Number: 210-821-4105

175 E. Houston

San Antonio, TX 78205-2233

www.sbc.com
 

Sales

$40.9 billion

Business Description 

SBC Communications, Inc. ranks among the largest providers of telecommunications services in the U.S. and the world.

Through our subsidiaries, we provide communications services and products in the U.S. and have investments in more than 25
countries. We offer our services and products to businesses and consumers, as well as other providers of
telecommunications services.

The services and products that we offer vary by market, and include: local exchange services, wireless
communications, long-distance services, internet services, telecommunications equipment, and directory
advertising and publishing. In the first quarter of 2004, we began offering satellite television services
through our agreement with EchoStar Communications Corp. (EchoStar). These results will be recorded in our
wireline segment. We group our operating subsidiaries as follows, corresponding to our operating segments for
financial reporting purposes:

o wireline subsidiaries provide primarily land and wire based services,
o wireless subsidiaries hold our investment in Cingular, which provides primarily radio-wave based
services,
o directory subsidiaries provide services related to directory advertising and publishing,
o international subsidiaries hold investments in primarily foreign entities outside of the U.S., and
o other subsidiaries provide primarily corporate operations.

Our principal wireline subsidiaries provide telecommunications services in thirteen states: Arkansas, California,
Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nevada, Ohio, Oklahoma, Texas, and Wisconsin
(13-state area). Wireline local exchange services offered in our 13-state area are provided through regulated
subsidiaries which operate within authorized regions subject to regulation by each state in which they operate
and by the Federal Communications Commission (FCC). Additional information relating to regulation is contained
under the heading "Government Regulation" below and in the 2003 SBC Annual Report to Shareowners under the
heading "Operating Environment and Trends of the Business", and is incorporated herein by reference pursuant to
General Instruction G(2).

InterLATA Long-distance

We are authorized to offer wireline interLATA (traditional) long-distance services nationwide but we provide
services primarily to customers in our 13-state area and to customers in selected areas outside our wireline
subsidiaries' operating areas.

Broadband Initiative

In October 1999, we announced plans to upgrade our network to make broadband digital subscriber line (DSL)
services available to approximately 80% of our U.S. wireline customers over the four years through 2003 (Project
Pronto). Due to the weakening U.S. economy and an uncertain and adverse regulatory environment, in October 2001
we announced a scale-back in our broadband deployment plans. As discussed in greater detail below, in August
2003, the FCC released its Triennial Review Order, which appears to provide some relief from unbundling
requirements for broadband and new fiber facilities and equipment used to provide data and high-speed internet
access services. However, because the new broadband rules contain some ambiguities and have been appealed to the
U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), and are subject to petitions for
reconsideration or clarification before the FCC, we continue to face uncertainty regarding the regulatory
treatment of our broadband investments. Nevertheless, due to increasing growth opportunities and competition, we
have resumed a Project Pronto-related limited build-out and expect to have DSL available to nearly 80% of our
wireline customer locations in early 2004, up from 75% at December 31, 2003. Our DSL lines, which provide
broadband internet access, continue to grow and were approximately 3,515,000 at December 31, 2003, compared to
2,199,000 at the end of 2002.

The FCC has begun reviewing the rules governing broadband services offered by cable, satellite and wireless
operators in addition to traditional wireline offerings. The FCC tentatively concluded that wireline broadband
internet access services are "information" services rather than "telecommunications" services, which would result
in less regulation. In October 2003, the United States Court of Appeals for the Ninth Circuit (9th Circuit)
ruled that broadband internet access services provided by cable operators involve both an "information service"
and a "telecommunications" service. If this decision is upheld (the FCC has a request for rehearing pending
before the 9th Circuit), the FCC may change its tentative conclusion that wireline broadband internet access
services are information services, not telecommunications services. It is likely that the FCC will not act in
these proceedings until the 9th Circuit rules on its request for rehearing. We are not certain of the effect the
9th Circuit's decision will have on our operations or financial statements.

Cable operators have no general obligation to provide third-party Internet Service Providers (ISPs) access to
their broadband networks at this time, although the FCC has begun a proceeding to consider the issue. The 9th
Circuit's decision (discussed above) could support the imposition on cable operators of some of the same
regulations applicable to wireline companies but it is unclear at this time whether the decision will have a
significant impact on providers of cable modem services.

In December 2002, the FCC ruled that advanced services, such as DSL, when provided through one of our separate
subsidiaries, are not subject to tariff regulations and cost study requirements. However, we are still required
to retain cost data and offer our retail advanced services for resale at a discount. This ruling should allow us
to respond more quickly to offerings by unregulated competitors. The FCC is expected to complete its broadband
review during 2004. The effect of the review on our results of operations and financial position cannot be
determined at this time.

Voice over Internet Protocol

Voice over Internet Protocol (VoIP) is generally used to describe the transmission of voice and data using
Internet-based technology rather than a traditional wire and switch-based telephone network. As a result, this
technology can provide services, although not necessarily of the same quality, often at a lower cost because a
traditional network need not be constructed and maintained and because it has not been subject to traditional
telephone industry regulation. In early 2004, the FCC opened a rule making proceeding on VoIP. The rulemaking is
expected to address whether and how a wide range of regulations should be applied to VoIP, including issues
related to federal and state jurisdiction, intercarrier compensation, universal service, public safety, consumer
protection and other matters. During 2003, a number of state utility commissions also began proceedings to
examine the regulatory treatment of VoIP.

Notwithstanding the unresolved regulatory questions before the FCC and the state commissions, numerous
communications providers began providing various forms of VoIP in 2003, or announced their intentions to do so in
the near future. These providers include both established companies as well as new entrants. Thus, while the
deployment of VoIP will result in increased competition for our core wireline voice services, it also presents
growth opportunities for us to develop new products for our customers.

Cingular

Cingular, our wireless joint venture with BellSouth, began operations in October 2000. Cingular serves
approximately 24.8 million customers and is the second-largest provider of mobile wireless voice and data
communications services in the U.S., based on the number of wireless customers. Cingular has access to licenses
on the 850 and 1900 MHz bands to provide cellular or PCS wireless communications services covering an aggregate
population of potential customers, referred to as "POPs", of approximately 236 million, or approximately 81% of
the U.S. population, including 45 of the 50 largest U.S. metropolitan areas. See "Recent Developments" below for
a discussion of Cingular's pending acquisition of AT&T Wireless Services, Inc. (AT&T Wireless).

Cingular's wireless networks use equipment with digital transmission technologies known as Global System for
Mobile Communication (GSM) technology and Time Division Multiple Access (TDMA) technology. Cingular
substantially completed upgrading its existing TDMA markets to use GSM technology in order to provide a common
voice standard. Cingular's GSM network now covers approximately 93% of Cingular's POPs. Additionally, through
roaming agreements with other carriers, Cingular customers have GSM coverage in approximately 90% of the U.S.
Also, Cingular is adding high-speed technologies for data services known as General Packet Radio Services (GPRS)
and Enhanced Data Rates for GSM Evolution (EDGE).

Cingular is in the process of upgrading its network to third generation (3G) wireless data technology by using
EDGE. EDGE technology is Cingular's choice for a 3G wireless communications standard that will allow customers
to access the Internet from their wireless devices at higher speeds than even GPRS. At December 31, 2003,
Cingular's EDGE technology covered approximately 20% of its POPs. Cingular expects the GSM/GPRS/EDGE network
overlay to be fully complete by the end of 2004.

BUSINESS OPERATIONS

Operating Segments

Our segments are strategic business units that offer different products and services and are managed
accordingly. Under U. S. generally accepted accounting principles (GAAP) segment reporting rules, we analyze our
various operating segments based on segment income. Interest expense, interest income, other income (expense) -
net and income tax expense are managed only on a total company basis and are, accordingly, reflected only in
consolidated results. Therefore, these items are not included in the calculation of each segment's percentage of
our consolidated results. We have five reportable segments that reflect the current management of our business:
(1) wireline; (2) Cingular; (3) directory; (4) international; and (5) other.

Wireline

Wireline is our largest operating segment, providing approximately 65% of 2003 revenues and 46% of income from
all our segments. Our wireline segment operates as both a retail and wholesale seller of communication
services. We provide landline telecommunications services, including local, long-distance voice, switched
access, data, and messaging services. Our landline telecommunications subsidiaries serve approximately 28.8
million retail consumer, 18.3 million retail business, 7.1 million wholesale and 0.5 million other access lines,
for a total of 54.7 million access lines in our 13-state area.

Services and Products

We divide our wireline services into four product-based categories - voice, data, long-distance and other.

Voice - Voice includes traditional local service provided to retail customers and wholesale access to our network
and individual network elements provided to competitors. Voice also includes calling features (described below),
fees to maintain wire located inside customer premises, pay telephones, customer premise equipment and other
equipment sales (described below) and other miscellaneous voice products.

Calling features are enhanced telephone services available to retail customers such as Caller ID, Call Waiting,
and voice mail. Customers that subscribe to these services can have the number and/or name of callers displayed
on their phone, be signaled that additional calls are incoming, and send and receive voice messages. These
services are not regulated by the FCC and are generally more profitable than basic local phone service.

Customer premises equipment and other equipment sales range from single-line and cordless telephones to
sophisticated digital PBX systems. PBX is a private telephone switching system, typically used by businesses and
usually located on a customer's premises, which provides intra-premise telephone services as well as access to
our network.

Data - Data includes traditional products, such as switched and dedicated transport, internet access and network
integration, and data equipment sales.

Switched Transport services transmit data using switching equipment to transfer the data between multiple lines
before reaching its destination. Dedicated Transport services use a single direct line to transmit data between
destinations. Integrated Services Digital Network (ISDN), Dedicated Frame Relay, DSL, Digital Services and
Synchronous Optical Network (SONET) are examples of Dedicated Transport services. ISDN transmits voice, video,
and data over a single line in support of a wide range of applications, including internet access. Frame Relay
is a routing technology that breaks a data signal into individual pieces of data to travel at high speeds and
then recombines the data prior to arriving at its destination. DSL is a digital modem technology that converts
existing twisted-pair telephone lines into access paths for multimedia and high-speed data communications to the
Internet or private networks. DSL allows customers to simultaneously make a phone call and access information
via the Internet or an office local area network. Digital Services use dedicated digital circuits to transmit
digital data at various high rates of speed. SONET provides customer access to our backbone network at various
high speeds.

Network integration services include installation of business data systems, local area networking, and other data
networking offerings. Internet access services include a wide range of products for residences and businesses,
varying by market. Internet services offered include basic dial-up access service, dedicated access, web
hosting, e-mail, and high-speed access services.

EchoStar Agreement

In July 2003, we entered into a co-branded service agreement with EchoStar to offer satellite television service to
customers in our 13-state area. Additional information on this agreement is contained in the 2003 SBC Annual Report
to Shareowners under the heading "Other Business Matters - EchoStar Agreement" beginning on page 29 and is
incorporated herein by reference pursuant to General Instruction G(2).

Yahoo! Alliance

In November 2001, we formed a strategic alliance with Yahoo! to provide co-branded broadband and dial-up service
to residential customers nationwide. During 2003, SBC and Yahoo! expanded the alliance to include co-branded
broadband and dial-up services designed for small businesses.

Long-distance voice - Long-distance voice consists of all interLATA (traditional long-distance) and intraLATA
(local toll) wireline revenues, including calling card and 1-800 services. Prior to 2003, Federal regulations
prohibited us from offering interLATA wireline long-distance services in six of our 13 states. During 2003, we
received regulatory approval to offer these services to customers in these remaining six states. We now may
provide interLATA wireline long-distance to customers nationwide.

Other - Other includes directory and operator assistance, and billing and collection services for other carriers.

Cingular

The Cingular segment reflects 100% of the results reported by Cingular, our wireless joint venture. This segment
replaces our previously titled "wireless" segment, which included 60% of Cingular's revenues and expenses. In our
consolidated financial statements, we report our 60% proportionate share of Cingular's results as equity in net
income (loss) of affiliates. For segment reporting, we report this equity in net income (loss) of affiliates in our
other segment.

While our consolidated operating revenues do not include Cingular's results, we do include 100% of Cingular's
revenues and expenses when we analyze our operating segment results. On that segment basis, the Cingular segment
provided approximately 27% of revenues and 12% of income from all our segments in 2003.

Cingular Wireless Joint Venture

In April 2000, we formed a joint venture with BellSouth to provide domestic wireless services nationally. In
October 2000, most of our and BellSouth's Domestic wireless operations were contributed to Cingular, which then
began operations. Economic ownership in Cingular is held 60% by us and 40% by BellSouth. We have equal voting
rights and representation on the board of directors that controls Cingular. Because we share control equally, we
use the equity method of accounting to account for our interest. Cingular is an SEC registrant by virtue of its
publicly traded debt securities. Accordingly, it files separate Forms 10-K, 10-Q and other reports with the SEC.

Cingular faces substantial competition in all aspects of its business as competition continues to increase in the
wireless communications industry. Under current FCC rules, six or more PCS licensees, two cellular licensees and
one or more enhanced specialized mobile radio licensees may operate in each of Cingular's markets. On average,
Cingular has four to five other wireless competitors in each of its markets and competes for customers based
principally on price, service offerings, call quality, coverage area and customer service.

Cingular's competitors are principally five national (Verizon Wireless, AT&T Wireless, Sprint PCS, Nextel
Communications and T-Mobile) and a larger number of regional providers of cellular, PCS and other wireless
communications services. Cingular also competes with resellers and wireline service providers. Moreover, Cingular
may experience significant competition from companies that provide similar services using other communications
technologies and services. While some of these technologies and services are now operational, others are being
developed or may be developed in the future.

See "Recent Developments" below for a discussion of Cingular's pending acquisition of AT&T Wireless. Cingular
agreed to acquire AT&T Wireless to expand its available spectrum and its network coverage and quality, and to
enhance its ability to offer future high-speed data services.

Additional information on Cingular is contained in the 2003 SBC Annual Report to Shareowners under the heading
"Expected Growth Areas - Wireless" beginning on page 21 and is incorporated herein by reference pursuant to General
Instruction G(2).

Directory

Our directory segment includes advertising, Yellow and White Pages directories and electronic directory
publishing. The directory segment provided approximately 8% of revenues and 26% of income from all our segments
in 2003. Our directory subsidiaries operate primarily in our 13-state area.

International

Our international segment includes all of our investments with primarily international operations. We have
direct or indirect interests in businesses located in more than 25 countries and as of December 31, 2003, have
international investments with a carrying value of approximately $7 billion. Our international investments
include companies that provide local and long-distance telephone services, wireless communications, voice
messaging, data services, internet access, telecommunications equipment, and directory publishing. We report
earnings from this segment as equity in net income of affiliates rather than as operating revenue because this
segment consists almost exclusively of investments where, under GAAP, we have significant influence rather than
control. Because most of our international investments are accounted for on the equity method, revenues from our
international segment were less than 1% of 2003 revenues from all our segments. The international segment
provided approximately 7% of income from all our segments in 2003.
 

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