Qwest, CenturyTel Lose Subscribers in First Quarter

 

By Melissa Korn

The Wall Street Journal

MAY 6, 2010

  

NEW YORK--CenturyTel Inc. and Qwest Communications International Inc., which announced a merger last month, each reported that they continued to lose landline subscribers in their first-quarter reports Wednesday.

 Overall, CenturyTel's earnings more than tripled, bolstered by CenturyTel last summer's acquisition of Embarq, while Qwest's earnings slumped 82%, weighed down by a one-time health care charge.

 The CenturyTel-Qwest merger is just the latest in a string of deals as regional players try to defend themselves against wireless and cable operators, many of which offer bundled services. The two companies both reported increased demand for their broadband services, though that growth hasn't yet offset losses from legacy operations.

 Qwest said in a call with analysts that while the downward trends are beginning to slow in some spots, traditional landlines are still disappearing at rapid rates. Meanwhile, CenturyTel said its access lines decreased 8.4% from a year earlier, while its high-speed Internet subscriber base grew 8.9%.

 CenturyTel, which has grown by scooping other landline companies, reported a profit of $252.6 million, or 84 cents a share, up from $67.2 million, or 67 cents, a year earlier. Excluding items such as acquisition-related and tax impacts, per-share earnings rose to 93 cents from 82 cents.

 Revenue soared to $1.8 billion amid the Embarq acquisition. The company in February forecast per-share earnings between 84 cents and 88 cents on revenue of $1.77 billion to $1.8 billion.

The telecom company also raised its 2010 forecast, now projecting earnings of $3.20 to $3.30 a share on a revenue decline of 6.5% to 7.5%. The company had forecast earnings of $3.10 to $3.20 a share on a revenue decline of 7.5% to 8.5%.

 Qwest reported a profit of $38 million, or 2 cents a share, down from $206 million, or 12 cents a share, a year earlier. The company booked a charge of 8 cents a share in the quarter on the loss of a tax subsidy for providing prescription-drug benefits for retirees under Medicare in the recent health-care overhaul.

 Revenue dropped 6.5% to $2.97 billion.

 Legacy revenue declines outweighed growth in broadband and other Internet services in all of Qwest's operating segments. Mass market unit revenue fell 11% to $1.2 billion, while revenue in the wholesale market segment declined 11% to $685 million. The business markets segment, which Qwest sees as a potential growth

opportunity, saw revenue slide 0.2% to $999 million.

 Qwest said it was encouraged by flat revenue from small business customers. "It's still not something to claim victory, but it's a change," Teresa Taylor, executive vice president and operating chief, said in an interview. The wholesale segment, though, is still "delicate."

 The company closed out the quarter with 9.7 million total access lines, down 11% from a year earlier. Broadband subscribers increased 5.3% to 40,000. Average revenue per user, a key metric for the industry, grew 6.9%.

 There are "early signs of increased customer activity" in the business market, while revenue trends are improving in other areas, too, Ms.Taylor said in a conference call, noting that proposal requests have picked up.

 Qwest expects revenue declines to slow to the low- to mid-single-digit range by the fourth quarter.

 Write to Melissa Korn at melissa.korn@dowjones.com