Seen Facing Cross-Platform Competition
Thursday, January 18, 2006
Deutsche Bank Securities research analyst Viktor Shvets
Communications International to "sell" from
"hold" following recent big gains for the stock.
"We emphasize that Qwest is not a stable, highly-leveraged
RLEC [reseller local exchange competitive] with a high
dividend pay-out," wrote the analyst in a research note
Shvets believes investors are beginning to value Qwest as a
large RLEC, with limited forward capital expenditure
requirements and relatively protected operating margins.
"In our view, nothing could be further from the truth," he
said. "On almost every operating parameter, Qwest is much
closer to the RBOCs [regional Bell operating companies] than
Given the highly concentrated nature of its U.S. West
business (top five states account for more than 80% of
has a similar degree of access line concentration to other
RBOCs, and is likely to face the same degree of
cross-platform competition, Shvets noted.
The research analyst believes it is unlikely that U.S. West
operating earnings can be protected without any significant
acceleration in capex, as many investors seem to be
Instead, Shvets anticipates that over the next two years
Qwest will follow other RBOCs on the path of accelerating
line losses, declining core profitability and rising
In addition, the Deutsche Bank analyst believes Qwest
Classic is coming toward the end of its cost-cutting
program, and its business model will remain challenged.
Qwest also has limited wireless exposure, he added, and is
unlikely to benefit from expected further improvement in
wireless industry cash flow generation.