BellSouth is seeing increased line loss to cable VoIP services, primarily because those services are more available in its region, CPO Patrick Shannon said this morning, in the company’s second quarter earnings call.

In what could be its last quarterly earnings announcement, BellSouth posted a 12% increase in profits and a 14% increase in earnings per share, based primarily on wireless and broadband successes. The merger which will make BellSouth part of AT&T is expected to close this fall, potentially ahead of a third quarter earnings report.

Shannon said access line losses for the quarter were 460,000, but were offset by increases in long-distance sales and particularly in DSL, where the company added 128,000 customers and grew revenues by 41% year-over-year. BellSouth now services 3.3 million DSL customers, 28% of whom subscribe to one of its two premium services, at 3 Megabits per second or 6 Mb/s, Shannon said.

“We continue to add more loyal and more profitable DSL customers,” he said. “DSL is now at 17.4% total penetration after adding 128,000 new customers. In addition, the economic mix of customers continues to improve, contributing to revenue growth and top line profitability. The customers for our lowest speed services actually fell by 42,000, driven by strong upgrade trends. Our 3 and 6 meg customers represent 28% of the base, or double what it was a year ago. That has positively impacted DSL revenue per unit.”

The losses of access lines to cable VoIP services “correlated closely to increased cable telephony deployment,” Shannon said. “The actual market share loss rates across the region remain constant in total. They are not more effective in selling VoIP, it is more available.”

BellSouth is seeing a pattern emerge, he added. Cable VoIP acceptance is highest in the first quarter a service is deployed and then falls off from there, Shannon said.

“The first quarter out of the gate is their best quarter,” he said. “Now that we have some history with this, you see a pretty significant drop-off in the second quarter. Also, [market acceptance is] vastly different market by market. The Raleigh market is very good for Time-Warner. If you look at some of the other Time Warner markets, it’s a vastly different profile – they are about 30% less effective in Charlotte than in Raleigh, and in Jackson [Miss.] and Memphis, they are 50% less effective. We have seen some new launches coming out from Comcast – their first quarter launches were more successful, but no where near the Raleigh market.”

Shannon told analysts that the $99 Triple Play offering that BellSouth is now testing in five metro areas is not a reaction to cable success in VoIP so much as a test of what consumers want.

“We continue to try different targeted offers in competition with cable,” he said. “This is another trial we are going through to see what works. It is being trialed in five metros that have VoIP competitors. Quite frankly, either their bundle or our bundle is a very attractive product.”

In both cases, he added, the promotional offering “is designed to drive call volumes into the call centers and we upgrade from there. We offer some pretty interesting packages that get the ARPU back up where it should be.”

BellSouth’s second quarter consolidated reported revenues from continuing operations were $5.2 billion, up 1% compared to the same quarter of 2005 while income from continuing operations was $887 million, up
11.6% from the year previous quarter. Excluding the cost of cutting 1300 jobs, earnings per share were 60 cents, which beat the Thomson Financial analysts average by three cents per share.

Communications Group revenues were up 1%, which reflected an expansion in mass market sales and “stablilization” in the large business customer segment, the company said. Data revenues were up 10% to $1.3 billion. Major DSL promotions helped drive a 41% increase in retail DSL revenues and an 18% year-over-year increase in retail data revenues. BellSouth added 128,000 new DSL customers in the quarter, and now serves 3.3 million DSL customers, more than 25% of which subscribe to one of two premium DSL services.

The company also added 126,000 long-distance customers and 63,000 DirecTV customers through its service bundle. Total access lines dropped by 460,000, reflecting competition from wireless substitution and cable VoIP services, as well as seasonal changes.

BellSouth continued to experience costs associated with recovery from Hurricane Katrina. The company said it spend $25 million in incremental expenses, net of $20 million in insurance payments, and incurred $130 million in incremental capital expenditures for Katrina restoration. That brings the total Katrina-related network restoration and capital expense to $910 million, some of which will be covered by insurance, the company said.