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Qwest bid to cut costs paying off

Budget paring and more high-speed-Internet subscribers help boost its second-quarter showing.

By Andy Vuong
The Denver Post

Posted: 07/30/2009 01:00:00 AM MDT

Updated: 07/30/2009 02:24:30 AM MDT


Cost cutting and high-speed-Internet subscriber growth helped Qwest post an 18 percent increase in second-quarter earnings, but the company continues to lose phone customers at an accelerating rate.

Land-line disconnections, largely responsible for the company's 9 percent drop in revenue for the quarter, are expected to worsen over the rest of the year as business bankruptcies, competition and wireless substitution eat away at Qwest's core business.

Total land lines dropped 11 percent in the second quarter to 10.9 million from 12.2 million a year ago.

"Operationally, Qwest continues to face challenges as primary line losses accelerated, unlike its larger peers," JP Morgan analyst Mike McCormack said in a note to clients.

Qwest shares fell 13 cents to close at $3.93 on Wednesday after the Denver-based company reported second-quarter net income of $212 million, or 12 cents a share, on revenue of $3.1 billion. The company's income taxes dropped by $113 million, bolstering the bottom line.

Qwest posted net earnings of $180 million on revenue of $3.4 billion during the same period a year ago.

The company has focused on broadband growth to help offset and stem declines in land-line customers. Qwest's fiber-to-the-node service, which includes the fastest Internet speeds the company can offer, now reaches 2.6 million homes, with 265,000 subscribing to it. The footprint is expected to reach 3 million homes by the end of the year, and the company announced last week that it is doubling the top speed to 40 megabits a second.

"When we have broadband deployed, we see a pretty precipitous improvement in line loss," said Qwest chief operating officer Tom Richards.

Overall, the company's high-speed-Internet subscribers grew 7 percent in the second quarter to 2.9 million from 2.7 million a year ago.

During the quarter, Qwest called off a possible sale of its fiber-optic-communications network, which carries Internet traffic over long distances for all of its business units. Qwest chief executive Ed Mueller said the network was put on the market after other companies asked whether it was for sale.

"It was an inquiry from others on how interested we'd be in releasing that asset," Mueller said. "We're done; we're moving ahead."

Qwest, the primary phone company in 14 states, resells offerings from DirecTV and Verizon Wireless as part of its bundle of services. Qwest said 15 percent of its residential phone customers, or roughly 853,000 homes, subscribe to DirecTV.

Revenue from large businesses and government agencies grew 1 percent to $1 billion.

Qwest cut operating expenses to $2.6 billion from $2.8 billion a year ago. The company has shed more than 3,600 jobs over the past year, with total employees dropping to 31,509 from 35,111.

Andy Vuong: 303-954-1209 or