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PACIFIC TELESIS WILL FACE DIM FI NANCIAL PROJECTIONS

NEW YORK-Two years after it divested itself of its international paging and cellular operations, Pacific Telesis Group, San Francisco, now confronts projections of two years of nearly flat earnings and cash flow until its new wireless ventures come into play, according to New York-based Prudential Securities Inc.

In its one-for-one stock distribution of its majority stake in AirTouch Communications Inc., “Pacific Telesis spun off its primary growth vehicle, which would have helped the company weather the current competitive and regulatory storm in telephony,” a recent Prudential report stated. “That said, we do expect PCS [Personal Communications Services] and wireless cable television to foster growth in the future, generating an estimated $400 million in revenues by 1999.”

But Pacific Telesis expects that significant external financing-including PCS and wireless cable initiatives undertaken by subsidiaries-will be required to position it “to pursue new opportunities, resist competitive incursions and lower costs,” said a recent Moody’s Investors Service release.

Consequently, Moody’s has placed under review for possible downgrade approximately $6.2 billion of outstanding long-term debt of the parent company and its subsidiaries.

“Moody’s review will evaluate the liquidity available to complete these projects, the risk that significant debt financing may be required, and the ability to manage financial risk to offset increasing business risk,” the rating agency announcement said.

Moody’s decision was announced amid predictions by Wall Street analysts, in part spurred by information from Pacific Telesis Group, that the phone company’s board was considering a dividend cut. The contemplated cut, which would have been a first for a Baby Bell, would have helped reduce Pacific Telesis’ need to borrow in order to fund its new wireless investments.

However, on March 25, Pacific Telesis announced it would maintain, at least for now, its annual dividend of $2.18 per share-the most generous of any Baby Bell. The next possibility for a dividend reduction comes in June.

“We were surprised the board didn’t vote to cut the dividend,” said Joanne C. Smith, a telecommunications analyst who co-authored the recent Prudential Securities report. “We felt it would have been prudent.”

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