Qwest Posts Lower Profit, Trims Full-Year Outlook
By Donna Kardos and Shirleen Dorman
The Wall Street Journal
Wednesday, August 6, 2008 11:26 a.m.

Qwest Communications International Inc. reported a 24% drop in second-quarter profit amid declining revenue and a tax charge. The telecommunications provider also lowered its outlook for the year.

Qwest posted net income of $188 million, or 11 cents a share, down from $246 million, or 13 cents, a year earlier. Qwest blamed the decline largely on a higher income tax rate.

Revenue slid 2% to $3.38 billion.

The company ended the quarter with 12.2 million access lines, down 8%, though broadband subscribers jumped 14% and revenue from data, video and Internet services climbed 9%.

Despite the increase in broadband subscribers, Chief Executive Edward Mueller said the company lost market share in the high-speed Internet market, making the Denver company the latest Baby Bell to lose market share to cable competition. Mr. Mueller cited seasonal issues, such as college students canceling their lines when they go home for the summer, as well as the lack of promotions, for the slower growth.

"While we lost a little ground, we feel pretty good about where we're headed," he told analysts during a conference call Wednesday.

Qwest again lowered its growth full-year forecast for total revenue to 2.5% and now sees earnings before interest, taxes, depreciation and amortization 1% to 2% below 2007 levels.

The phone carrier has been hurting from a slowing economy and stiff competition from cable and wireless alternatives. The company is hoping to offset its access-line loss and weakness in its wholesale business through growth in data and Internet services.

Qwest was hoping to improve its performance through wholesale price increases, but that effort was dealt a major blow two weeks ago, when the Federal Communications Commission denied the company's request to raise wholesale prices in four markets. Qwest had argued it faces enough competition from cable and other phone providers in four cities to be given relief from pricing constraints for smaller companies that use its wires to operate, but competitors lobbied, saying they couldn't access the markets.

Separately, late Tuesday Qwest won partial regulatory relief from the FCC from rules governing the commercial Internet market. The FCC lifted pricing restrictions for some of Qwest's Internet services offered to large companies that move massive amounts of data through their networks.

AT&T Inc., Embarq Corp. and Verizon Communications Inc. all have been given similar pricing flexibility.

--Roger Cheng and Fawn Johnson contributed to this article

Write to Donna Kardos at donna.kardos@dowjones.com and Shirleen Dorman at shirleen.dorman@dowjones.com

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