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Qwest profit fails to impress investors
Some say that despite its third straight quarter in the black, the telco shows no signs of building revenue against rivals.
By Andy Vuong, Staff Writer
Denver Post
Wednesday, November 1, 2006

Qwest reported its third straight quarterly profit Tuesday as cost cuts and growth in high-speed Internet subscribers helped offset a larger-than-expected decline in land-line customers.

The Denver-based phone company posted a third-quarter net profit of $194 million, 9 cents per share. It had a net loss of $144 million, 8 cents per share, during the same period a year ago.

Revenue stayed relatively flat at $3.49 billion, which included a $94 million tax gain and a $43 million severance charge related to a consolidation of call centers.

Investors and analysts weren't enthused. Qwest stock fell 4 percent to close at $8.63 a share.

Analysts expressed concern about Qwest's 6 percent drop in total access lines. The company had a 5.3 percent decline in the second quarter.

"The quarter started to show the increasing impact of competition, both on the consumer side and on the business side," said Donna Jaegers, a telecom analyst with Janco Partners.

Still, Qwest has posted a net profit of $399 million during the first nine months of this year.  With the closing of its $107 million acquisition of fiber-optic network operator OnFiber Communications during the quarter, could Qwest be in position to acquire another company?

"We're looking.  We're scanning.  But there's no shortage of beachfront property," said Qwest chairman and chief executive Richard Notebaert.

He said Qwest will stay with its "very disciplined approach" and not overpay for a company.

Absent another acquisition, analysts are wary of Qwest's ability to boost revenue amid stiff competition from cable companies.

Comcast and others have aggressively marketed discounted bundled offerings of video, Internet and land-line phone services to lure customers away from the telcos.

To compete against the cable triple-play offering, Qwest has pushed its own bundle of services.  But the offerings include satellite-TV service from DirecTV and cellphone service from Sprint, while Comcast provides all the services in its bundles.

"They're not out there with a competitive product versus the cable companies," said Chris King, an analyst with Stifel Nicolaus.

Qwest added nearly 100,000 subscribers to its DirecTV offering, taking the total to 310,000 customers.  But King doesn't believe DirecTV will be a long-term value creator for Qwest.

"It's simply a tool to reduce wire-line churn," he said.

Qwest added more than 175,000 high-speed Internet subscribers in the third quarter, a 10 percent increase from last quarter and a 47 percent increase year-over-year.  The company now has more than 2 million Digital Subscriber Line customers.

Qwest's operating expenses declined 6.3 percent to $3.1 billion because of improvements in operating efficiencies, lower facility costs and lower depreciation.

The company has reduced its net debt by $800 million this year to $13.7 billion, chief financial officer Oren Shaffer said.

Staff writer Andy Vuong can be reached at 303-954-1209 or