Qwest profits sag 39%

by Roger Cheng, Wall Street Journal

Qwest Communications International Inc. reported a 39% slide in fourth-quarter earnings as a result of severance costs and the continued deterioration of demand in its traditional phone services.

The Denver telecommunications company faces further decline in its so-called legacy business as more consumers drop their landline in favor of a wireless connection, or get their phone services from the cable companies.

Unlike its larger telecom-carrier peers, Qwest doesn't own its own wireless business to offset the losses. Instead, it looks to its burgeoning business services division, as well as its limited fiber-optic network upgrade project, for growth.

Qwest reported a profit of $108 million, or six cents a share, down from $177 million, or 10 cents, a year earlier. Results included severance costs of two cents. Revenue dropped 9.7% to $2.99 billion.

In laying out its plans for the year, Qwest executives focused on pushing investment in several projects, including a more aggressive roll-out of a faster network. It is a change in tone for a company that has largely relied on slashing expenses to improve its bottom line.

"For the past few years, [Qwest] has been a cost-cutting story, and they continue to do better at bringing costs down than we expected," said Todd Rosenbluth, an equity analyst at Standard & Poor's.

The consumer phone business saw revenue decline 13% from a year ago on further line losses. The company has been able to offset that in part with growth in the small areas where it has upgraded its network to offer a faster Internet connection. While the company plans to spend more on the project, it remains slow relative to its larger peers.

The wholesale business, in which it carries phone traffic for the other carriers, also declined 14% as the company sheds business it deems less profitable. The company actively stopped carrying long-distance traffic in the quarter.

To better compete against the cable companies, Qwest partners with Verizon Wireless for wireless services, and DirecTV Group Inc. for television.

Qwest added 64,000 wireless subscribers in the period, bringing its base to 850,000. It added 23,000 satellite TV customers, bringing its base to 880,000.

Qwest is a relatively small player in the business services market, and as a result, has been able to grow its share and limit its revenue decline. Revenue for advanced Internet-based services, however, rose 24%.

Executives said business spending remained stable, offering a relatively more optimistic view on the segment than its peers. "When the big guys are ready to spill some money, we're there to catch it," said Chief Executive Ed Mueller.

The company ended the quarter with 10.3 million total access lines, down 11% from a year earlier. Broadband subscribers increased 4.5%. Average revenue per user, a key metric for the industry, rose 5.4%.

Looking ahead, Qwest expects "improving revenue comparisons" over the course of the year with the year-over-year decline improving to a low-to-mid single-digit rate by the fourth quarter. The company sees 2010 adjusted earnings before interest, taxes, depreciation and amortization of $4.3 billlion to $4.4 billion.

article originally published at Wall Street Journal.

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