updated 1/26/2005 1:46:42 PM ET 2005-01-26T18:46:42

SBC Communications Inc., the nation’s second largest local phone service provider, said Wednesday its earnings fell 16.7 percent in the fourth quarter and that it plans to cut 7,000 jobs this year in a bid to cut costs.

The job cuts for 2005 will be mostly made through attrition and are part of plans announced last November to cut 10,000 or more jobs by the end of this year.

San Antonio-based SBC said it earned $754 million, or 23 cents a share, in the three months ended Dec. 31, compared with $905 million, or 27 cents per share, a year earlier.

Excluding special items, income in the latest quarter was 34 cents per share, compared to the consensus of 33 cents among analysts surveyed by Thomson First Call.

SBC’s special items included nearly $400 million for costs related to Cingular Wireless’s acquisition of AT&T Wireless, and $244 million for severance payments and changes to the company’s pension plan for management. SBC holds a 60 percent stake in Atlanta-based Cingular.

Revenue in the fourth quarter was $10.3 billion, up from $10 billion a year earlier.

SBC shares rose 12 cents to $24.57 in afternoon trading on the New York Stock Exchange. Its shares have traded in a range of $22.98 to $27.29 over the past year.

The company had said in a filing with the Securities and Exchange Commission in November that it would cut 10,000 or more jobs by the end of 2005, representing about 6 percent of its work force.

SBC said Wednesday it plans to cut 7,000 positions in 2005, primarily through attrition.

The November filing came a day after a prominent analyst wrote that SBC has more workers per phone line than its competitors, and that the company could save $1.2 billion a year by cutting up to 20,000 jobs.

Anne Vincent, an SBC spokeswoman, said Wednesday that the company eliminated 6,000 jobs in all of 2004, half of them in the fourth quarter.

SBC’s total work force was 162,700 at the end of 2004, Vincent said. That number is down more than 35,000 positions since late 2001.

“SBC has a disciplined, focused plan to compete and grow in an evolving industry, and we are executing that plan aggressively,” said chairman and chief executive Edward Whitacre Jr. “I am very positive about 2005.”

SBC said it lost 266,000 lines in its core local-phone operation in the quarter, continuing a trend that began several years ago. Sales in that sector, which represents about half of SBC’s revenue, dropped 2.7 percent to $5.1 billion.

The company said that loss was more than offset by a 10.5 percent gain in sales of its high-speed Internet and business data services, and it reported a 23.5 percent increase in long-distance phone revenue.

Peter Rhamey, a telecom analyst with BMO Nesbitt Burns in Toronto, said he believes SBC’s growth in these emerging sectors streams may signal a revenue and earnings rebound in 2005.

“I thought management sounded the most upbeat that they’ve been in going on two years now,” he said after listening to the company’s earnings conference call. “You could almost call Q4 of this year the trough, and that earnings should go forward from here.”

Rhamey, however, cautioned that SBC still faces challenges this year, among them how quickly it establishes itself in the growing Internet-based phone market.

SBC said late last year that it plans to roll out its residential Voice over Internet Protocol service in early 2005, later than many of its top competitors.

For all of 2004, SBC reported earnings of $5.9 billion, or $1.79 a share, on revenue of $40.8 billion, compared with profit of $8.5 billion, or $2.56 a share, on revenue of $40.5 billion in 2003.

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