SEC Examines Telecom Firms' Calculations of Total Customers
Subscriber numbers first caught the SEC's attention in 2002 when the agency charged Adelphia Communications with inflating its customer totals.
(Toby Talbot -- AP)
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By Christopher Stern Washington Post Staff Writer
Saturday, July 3, 2004; Page E01
The Securities and Exchange Commission has begun an informal inquiry into the methods used by 20 telecommunications companies to count their customers.
In the increasingly competitive industry, subscriber numbers play a critical role in how investors measure the success of companies as they invade each other's businesses and vie for market share.
In mid-June, the SEC sent letters to telephone industry giants, including Verizon Communications Inc., AT&T Corp. and Cingular Wireless LLC. Several cable companies, including Cox Communications Inc. and Comcast Corp., also received letters from the SEC, representatives from the companies confirmed yesterday.
Less than two weeks after the SEC sent out requests for information, Verizon revealed in a filing with the agency that it had overstated the number of long-distance lines it serves by more than 9 percent, or 1.5 million.
In its first-quarter financial report, Verizon stated that it had 17.5 million long-distance lines as of March 31, but in its filing Thursday the company said that the actual number was closer to 16 million.
Robert Varettoni, a Verizon spokesman, said the company's overstatement was uncovered during a regular internal review and was not related to the SEC's investigation. In its SEC filing, Verizon blamed the overstatement on an "internal system database issue."
Even after the reduction, Verizon remains the second-largest long-distance company, bypassing MCI Inc., which has approximately 15 million customers. AT&T, which reports subscriber numbers on an annual basis, stated that it had 30.3 million long-distance customers at the end of 2003.
"These companies are in a fierce battle with each other," said Drake Johnstone, a telecommunications analyst with Davenport & Co. "These numbers are important because they indicate how companies are doing relative to competition," Johnstone said.
Johnstone noted that subscriber numbers are particularly important to the hypercompetitive wireless phone industry, where the stock values of individual companies often rise and fall based on the quarterly reports of total customers.
Subscriber numbers first caught the SEC's attention in 2002 when the agency charged Adelphia Communications Corp., a Pennsylvania-based cable television company that has since moved to Colorado, with inflating its customer list in an effort to improve its standing on Wall Street. Those charges are still pending. Separately, four Adelphia executives are currently on trial in a New York federal court on fraud charges. The jury is deliberating after a four-month trial.
