Copyright 1998 Warren Publishing, Inc

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Communications Daily

August 14, 1998, Friday

SECTION: TODAY'S NEWS

LENGTH: 724 words

HEADLINE: BELL COMPANIES EXPECT TO SPEND $1.2 BILLION ON Y2K COMPLIANCE

BODY:

Big LECs expect to spend at least $200-$300 million each over

next year to review, upgrade and test billing systems, computer

networks and other software-based operations to avoid collapse at

start of next century, companies told SEC in filings this week.

Bell companies said first phases of testing and evaluation have

been completed, with most companies targeting middle of next year

to have systems in place and tested. BellSouth told SEC it

expected to have its systems ready by Jan. 1, 2000. Only Sprint

of major IXCs filed at SEC, estimated costs at $200 million

through next year. All companies noted that contingency plans are

being developed in case software upgrades fail to work.

Disclosures are first by major carriers and comply with new SEC

regulations.

Bell Atlantic filed its Year 2000 (Y2K) cost estimates

earlier this year, noting that based on current projects it

expected to incur pretax expenses of $200-$300 million. SBC

Communications said it expected to spend just under $250 million

on its modifications, and had spent about $60 million through end

of June. Company provided most detailed inventory of work, saying

that process involved reviewing 300 million lines of code, 1,100

central office switches, 6,800 buildings, 100,000 PCs. Work also

involves coordination with 3rd party vendors, SBC said, that will

provide testing and any backup systems that may be needed:

"Nearly half of the systems to be addressed by these activities

were complete" by June 30. Some testing already has started, it

said, with backup needs identified as testing proceeds.

SBC's merger partner, Ameritech, estimated its software

upgrade would cost $280 million, including $210 million for

project, in addition to $40 million already spent through June 30

and additional $30 million in capital improvements expected to

complete work. "Such capital costs are being incurred sooner than

originally planned, but, for the most part, would have been

required in the normal course of business," company said. It

already is in "remediation phase" of its work, filing said.

Ameritech said it also is developing scenarios in event system

collapses, using experience gained from backup plans for natural

disasters, power failure and other software issues.

BellSouth set its cost at $100-$200 million through turn of

century, but will "continually reassess" estimated expense for

work. Mission-critical systems that control operations will be

compliant by Jan. 1, 2000 -- date on which problem would occur, if

at all. BS admitted that system collapse resulting from computer

glitch could be costly, resulting in "substantial claims" by

customers or revenue loss and would delay billing customers

"accurately and timely," with increasing costs for possible

litigation. It said it planned to have initial test of most

critical systems completed by year-end, with intersystem testing

or system installation by middle of next year.

U S West split its review into 5 phases: (1)

Inventory/assessment. (2) Planning. (3) Conversion. (4)

Testing/certification. (5) Implementation. In SEC filing,

company said first 2 steps were completed, with testing due to be

finished by Dec. and implementation by next July. USW said it

spent $40 million through 2nd quarter on project, and said

estimated additional costs increased to $200 million from about

$150 million through end of next year. Additional capital

expenditures will reach $50-$80 million in same period, with costs

paid by existing operations.

Sprint was only big 3 IXC to file at SEC by our deadline,

estimating $200 million expense through next year and warned that

failure to modify software could result in system failure that

"could have a material effect" on operations. Like some other

companies, Sprint said it began process in 1996 but didn't begin

spending significant cash until last year. It said it began

testing systems this month and expects to have process completed

next year. "Sprint is using both internal and external sources to

identify, correct or reprogram and test its systems," it said.