Qwest's Quest For Financial Health
By Almar Latour
The Wall Street Journal
Saturday, February 11, 2006
When Qwest Communications International Inc. reports
fourth-quarter results Tuesday, it will be with some sense
Shares of the Denver-based company are up nearly 40% over
the past 12 months. Investors have been cheering its
success at re-engineering its $15.5 billion debt load to cut
yearly interest costs by $300 million and at keeping capital
expenditures in check.
Attention now will be focused on whether Qwest can continue
cutting costs, which would free up cash flow and allow it to
accelerate paying down its debt. The company's debt now
exceeds its market capitalization by roughly $4 billion.
Qwest also says it may turn profitable in 2006. The
company, which lost a bitter takeover fight with Verizon
Communications Inc. for long-distance carrier MCI Inc. last
year, is still recovering from an accounting scandal several
years ago that forced it to restate billions of dollars of
But while cost-cutting is helping the company in the short
term, longer-term challenges remain.
During the past year, cable companies have been poaching
Qwest's phone customers in Phoenix, Seattle and other large
metropolitan areas, and they are expected to accelerate
their efforts in the coming year. Omaha, Neb., today has
more consumers subscribing to phone service from their cable
company than from Qwest, the city's local phone company.
Investors closely watch land-line losses for all local phone
companies. Such lines are more important to Qwest than they
are to Verizon or AT&T Inc. because most of Qwest's revenue
is linked to land-lines. Its peers own stakes in large and
growing wireless operations that help offset losses on
land-line services. Qwest only resells wireless service
from Sprint Corp.
A more aggressive attack from cable companies may force
Qwest to start slashing prices for its high-speed Internet
service -- something it has been reluctant to do. Other
phone companies locked in competition with cable have been
cutting broadband rates significantly in the past year.
Investors have been applauding Qwest's relatively low
capital expenditures. But while this strategy helps the
company report healthy cash flow, it may hurt Qwest's
competitiveness in the long term if the company falls behind
its rivals in investing in network upgrades and rolling out
Almar Latour at