BellSouth doesn't need to buy a long-distance network to survive and prosper, its chief financial officer said today. In fact, Ron Dykes told the Bank of America Securities Media, Telecommunications and Entertainment Conference that shifts in both consumer choices and network technologies have made owning a long-distance network much less appealing than other potential investments.

"If we have a dollar, and we do, we would put it in another place, and we have," Dykes told the New York gathering of investors and analysts, when asked how BellSouth will stack up against AT&T/SBC and MCI/Verizon, if those mergers proceed as planned. "From our perspective, it is better to have rented those assets than to have owned them. That has been our direction and that will be our direction for a while."

The shift from switched networks, which are centrally controlled, to IP networks with more distributed intelligence has changed the industry dynamic, said Dykes, who spent much of his presentation focused on Cingular Wireless and how it has contributed to BellSouth's bottom line.

"The announced industry consolidation in the enterprise space should be a positive for the segment, particularly with the overcapacity that exists today," Dykes said. "The fundamentals of the enterprise market--with the transition to IP, large companies are moving network intelligence from core of switched network to edge of IP network" guarantee that future networks will be "simpler, faster and much less expensive."

BellSouth currently derives 7% to 8% of its revenues from large enterprise customers and doesn't expect that to slip, he added.

Over the next three years, BellSouth will use its cash flow to pay down half of the $6 billion it borrowed to enable Cingular to buy AT&T Wireless and will invest in making the wireless company it jointly owns with SBC Communications "an industry leading" operation with lower churn, higher customer satisfaction and a new UMTS network. Cingular should also see higher margins as the benefits of the merger kick in, he added.

The company won't have to dramatically invest in its wireline network even if it begins to offer IPTV, Dykes said.

"Nearly half of our customers are served with short copper loops--5000 feet or less," he said. "We will get to 80% over the next three year without material change to capex. We are not looking to ratchet up to finish that project. If we elect to go into the IPTV business, there will be a modest investment around that, but we already have the network to support that."

BellSouth isn't looking to unload its rural access lines, Dykes said. It is expecting continued attrition in the access line business, but primarily because of wireless replacement, not voice over IP.

The company doesn't have a commercial VoIP product for consumers and won't introduce one unless "it becomes the buzz," he said. If the real competition is just about lower-cost phone service, BellSouth can compete on price using its existing facilities, Dykes said. He also highlighted BellSouth's ability to continue lowering its costs on the wireline side, saying that in its last labor negotiations, the company retained "extreme flexibility when it comes to adjusting our labor force to the market demands. Not that it's a pleasant thing to go through," said Dykes.

Asked how BellSouth will invest its expected free cash flow after the three-year period he described, Dykes jokingly admitted that, "I don't know what the hell we are going to do with that money."

He agreed with analysts who said the current year is likely to be something of a high point for cash flow, in part because, with the end of UNE-P sales, BellSouth will receive more income from its unbundled network element sales under commercial agreements it has signed with competitive carriers, and the company won't yet have lost significant customers to cable VoIP efforts.