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Four analysts and top management from twenty-two sector firms examine the communications 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: What kind of guidance have you been giving telecommunications investors through what has been a very difficult period?

Mr. Morabito: 2001 will probably go on record as being the worst year in telecom since the breakup of Ma Bell in 1984. What we’re telling people now is to play it safe, to really focus on the incumbent carriers for 2002 while the industry collects itself, recalibrates, if you will, over the next several quarters.

TWST: How do you see the health of the telecommunications industry today?

Mr. Morabito: Overall, while times are currently very difficult, we think that for the long term, telecom will be just fine. While the growth isn’t what it used to be, particularly in data/Internet businesses such as high-speed access and Web hosting, combined with the fact that wireless is starting to slow a bit, we believe that the potential opportunity is still fairly significant when you compare it to other industries. We do, once again, believe that the incumbents are the safest way to play the industry growth that will be coming down the pike. For example, you really don’t want to be looking at independent Web hosting companies or independent ISPs, there is simply too much risk with these business models. You want to focus on the incumbent carriers with diversified revenue streams, strong balance sheets, solid cash flows and dominant market positions as the best way to play these high growth subsectors that we mentioned.

TWST: What type of investor should be looking closely at SBC (NYSE:SBC)?

Mr. Morabito: SBC is an interesting one. We do think that it is a very well run company, we like the California set of assets, and we are impressed that the company has gotten long distance entry in all five of its former Southwestern Bell states. But you’ve got to wonder what is really going to jump start the stock, aside from a pretty dramatic economic turnaround. We’re trying to figure out what that is at this point. They have the same issues that the other RBOCs face in terms of the access line loss, the wireless substitution, things of that nature. The one positive is that if they lose a wireline customer to a wireless supplier, the wireless supplier could very well be them, because they own Cingular, so it’s not the worst thing to lose a wireline to a wireless, but ideally you’d have both. That’s an optimistic way to look at the situation. We’re trying to wrestle with what is really going to get SBC’s stock moving again, and it is really tough right now, outside of an economic turnaround.

TWST: What generally drives spending for the communication services industry? Is it new technology or the need to maintain and upgrade systems?

Mr. Morabito: Overall maintenance of the network always plays a big part, but new technologies and applications really tend to ignite capital spending growth. With the poor economy, demand has fallen for all types of services, that’s a fact of life in the current environment. What would help spur some spending is, for example in the wireless sector, the 2.5G and 3G deployment people are talking about. But we don’t expect really dramatic upticks in wireless spending until 2003. It’s really a function of demand, and right now, given the state of the economy, people are losing their jobs, companies are more constricted than ever by their budgets, and they’re deciding they can hold off on certain telecom expenditures. It may sound rather like a copout, but it really has to do with an economic turnaround.

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.