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Four analysts and top management from twenty-two sector firms examine the comunications services sector in this special 98-page Comunications Services issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info470.htm.

TWST: How would you differentiate between BellSouth (NYSE:BLS) and Verizon (NYSE:VZ) as investments at this time?

Mr. Morabito: I would view BellSouth as a more conservative play. They’re very focused on the Southeast area. They’re the regional Bell that hasn’t done a mega-merger yet. So the thought process of a lot of people out there is they have to do one, and it’s probably going to be dilutive to BellSouth’s earnings.

TWST: Who are the likely candidates?

Mr. Morabito: A likely candidate would be Qwest (NYSE:Q). I would put Qwest at the top of the list, and I would also put Sprint (NYSE:FON) and WorldCom (Nasdaq:WCOM) on the short list of candidates. We think this is the major reason why BellSouth’s stock has been relatively flat for the last couple of years, because a lot of people think that a dilutive merger is imminent. Operationally, we believe that BellSouth is a great company with a very strong management team. But again, until they get this issue of scale behind them, we think the stock could be flat for some time.

TWST: What kind of strategies are the incumbents deploying to prevent the CLECs from taking market share?

Mr. Morabito: The Bells are starting to win back some programs, and they have been reasonably successful. For example, BellSouth has been quite aggressive at winning back its customers and the angle that they are playing right now is just plain old safety and reliability. Do you really want to be out there on a limb with your telecom service at risk due to a Chapter 11 filing, or for example, what’s going on with cable access provider AtHome? That is a very timely matter right now, with the regional Bells saying, “Hey, sign up for our DSL service. We’re going to be here. We’re not going anywhere, why risk it with a startup?” They’ve been fairly successful at playing that safety card, together with the fact that, because they’ve been around for over 100 years, they’re not going anywhere. But in terms of actually losing customers, we think that the Bells could be a bit better at customer service, and a bit quicker on some of their installations and repair requests. It’s still taking too long to get DSL hooked up in many areas. A lot of small businesses feel that they’re being left out in the cold as the Bells focus on the residential customer, where they will always be a force, and the very, very large business customer. So there is a group of small and medium-sized businesses that the CLECs target that we think the Bells could do a better job of servicing. If they do that, it could be that much more difficult for the CLECs.

TWST: Do you see any emerging business areas developing over the next year or two, perhaps spurred by new technologies or new approaches?

Mr. Morabito: Really, probably the newer angles on this will be through wireless, and it remains to be seen how that’s going to develop. Right now they’re talking about 2.5G, and then eventually it’s going to be 3G. These are going to be exciting new technologies and the early adaptors are going to be all over it like a wet blanket. The question, however, remains whether or not there is widespread demand for these services among mainstream users. A lot of people out there might not see a need to check sports scores, watch videos on their cell phones and send e-mails through their cell phone. That being said, we do think that most of the innovation will come through the wireless realm. There will always be some sorts of innovation coming from the data Internet applications, more expanded use of video streaming, the live video downfeeds, video conferencing, things of that nature that are going to help alleviate the so-called bandwidth glut. There are so many applications that are coming down the pike that are really just on the drawing board right now and we can only just imagine what they’ll look like down the road.

This special issue includes:

1) Communications Services & Equipment - In an in-depth (4,500 words) Analyst Interview, Rick Franklin & Gary Mobley, both Senior Industry Analysts at Bank of America Capital Management, examine the outlook for the sector and share specific stock recommendations.

2) Emerging Communications - In an in-depth (4,100 words) Analyst Interview, Vik Grover, Managing Director at Kaufman Bros., L.P., examines the outlook for the sector and shares specific stock recommendations.

3) CLEC & Incumbents - In an in-depth (4,300 words) Analyst Interview, Thomas Morabito, First Vice President/Senior Telecom Analyst at McDonald Investments, Inc., examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of twenty-two sector firms examine the outlook for their firm and the sector.