Profit Is Helped by Gain
By Roger Cheng
The Wall Street Journal
Friday, February 9, 2007
Qwest Communications International Inc.'s aggressive cost
cuts helped the company turn a profit, but it wasn't enough
to satisfy Wall Street expectations.
The Denver telecommunications service provider reported its
first full year of profit since 2003, as it regains its
financial footing. In that time, the company has faced an
accounting scandal with its former chief executive,
questions about the viability of its business and heavy
debt, and a failed attempt to acquire MCI Inc.
Despite its progress, fourth-quarter results will likely be
received negatively as results were propped up by one-time
"Results were disappointing," said Donna Jaegers, an analyst
for Janco Partners.
The company reported fourth-quarter net income of $194
million, or 10 cents a share, which was helped by a $61
million gain on the sale of real estate assets. A year
earlier, the company posted a loss of $528 million, or 28
cents a share, weighed down by a $430 million charge for
paying down debt.
The company, which provides telecommunication services
throughout the Western and Northwestern U.S., saw revenue
inch up to $3.49 billion from $3.48 billion a year earlier,
as growth in key data products and services offset customer
migration away from the company's legacy products and
pricing pressure from voice services.
The company has been aggressively cutting jobs and other
costs and increasing productivity in an effort to regain its
profitability. Fourth-quarter operating expenses declined
$156 million, or 4.8%, from a year earlier, driven by lower
facility costs, depreciation expense and realignment costs,
the company said. Heavy storms in the West and Pacific
Northwest also added to fourth-quarter costs.
While margins on an earnings before interest, taxes,
depreciation and amortization basis rose from a year
earlier, they slipped compared with the third quarter.
That's a cause for concern, Standard & Poor's analyst Todd
"They're taking a step back," he said. "We're seeing margin
expansion from other telecom carriers even as they put
upfront costs related to their network upgrade. We're
disappointed by this."
He expressed his concern that Qwest may struggle to find
ways to further cut costs to drive growth.
Helping drive the turnaround has been the company's
aggressive push of bundled services -- which include
traditional telephone and high-speed Internet, along with
television through a partnership with DirecTV Group Inc. and
wireless through a deal with Sprint Nextel Corp. The
additional services help the company retain customers from
By grouping multiple services to a customer, the company can
generate a higher amount of revenue per household.
While Qwest added 259,000 Internet, video and wireless
subscribers, the company continues to lose customers in its
traditional access line business. It ended the year with
13.8 million connections, down 6.4% from a year earlier.
Qwest's debt level continues to be a concern for Wall
Street. The company said it had lowered it to $13.4
billion, a decrease of $1.1 billion from a year earlier. It
also ended the year with $1.5 billion in cash and short-term
The company's high debt level was one of the reasons it
eventually lost out to Verizon Cpmmunications Inc. in its
bid to acquire MCI.
--Mike Barris and
Jonathan Vuocolo contributed to this article
Write to Roger Cheng at