August 2, 2005 12:48 p.m. EDT
Qwest's Net Loss
By Dionne Searcey, Staff Reporter
THE WALL STREET JOURNAL
Tuesday August 2, 2005 

Qwest Communications International Inc., the Midwest phone company that lost a heated, months-long battle to acquire MCI Inc., narrowed its second-quarter loss as revenues increased slightly.

Denver-based Qwest posted a loss of $164 million or nine cents a share, which included a one-time debt charge of $43 million.  That was compared to a loss of $776 million, or 43 cents a share, over the same period a year ago, which included a one-time charge of $443 million for costs associated with workforce reductions, tax charges, money set aside in anticipation of legal settlements and other charges.

Qwest along with other phone companies is trying to mitigate the loss of its core landline business as customers drop their traditional phones for wireless plans or cheaper Internet-based phone service offered by cable companies.  The war between phone and cable companies is intensifying as each competes for broadband customers and some phone companies make plans to offer their own television service.

Overall second-quarter revenues were $3.47 billion, up 0.8% from the same period the previous year.  Wireline revenue at Qwest was relatively flat at $3.33 billion, compared to $3.3 billion over the same period last year.  The number of phone lines declined to 15 million this quarter, down 15% from in the second quarter of 2004.

Total revenues from digital subscriber lines and other Internet services were up 3% to $996 million.  Qwest expanded its high-speed Internet offering to more customers this quarter and was able to grow its number of DSL customers to 1.19 million, a 40% jump over the same period last year.

"The competition from cable has been real and has been something we are learning to deal with," Richard C. Notebaert, Qwest chairman and CEO, said in an interview.

Mr. Notebaert said his company was combating the cable threat by offering more promotions for its services and better tailoring its marketing to various regions.  He said bundling phone, wireless, video and broadband services would help his company get a leg up on cable companies, which don't have a stake in wireless companies.  He also said Qwest plans to roll out a customer trial of WiMAX, a wireless broadband service that has a several-mile range, most likely toward the end of the year in Colorado and possibly Montana and Nebraska.

This quarter, wireless revenues rose to $130 million, a 2% increase over the second quarter in 2004 as more people subscribed to higher-priced plans.  But the number of overall subscribers was down 9% to 744,000.

Qwest is in the throes of a three-year federal investigation into accounting irregularities that forced the company to restate earnings from 2000 and 2001 and erase about $2.2 billion in revenue.  Last year, it agreed to pay $250 million to settle SEC fraud charges.  The company did not admit wrongdoing.

Last month, Robin Szeliga, Qwest's former chief financial officer, pleaded guilty to a single criminal count of insider trading.  Ms. Szeliga, 44 years old, is the highest-ranking officer to admit wrongdoing in the scandal.  She agreed to cooperate with the government's investigation of other former executives at Qwest, which was a star during the technology boom of the late 1990s.  Former Chairman and Chief Executive Joseph Nacchio and other former executives face civil fraud charges in connection with the company's accounting problems.  Mr. Nacchio has denied wrongdoing.

Earlier this year, Qwest was involved in a tumultuous battle with Verizon Communications Inc. for MCI.  Despite outbidding Verizon, Qwest ultimately lost.  On a conference call with analysts, company officials were reluctant to reveal much about their interest in trying to acquire another company.

"If the right opportunity came along at the right price so I could put pencil to paper and show our owners why it makes sense then we'd consider it," Mr. Notebaert said.  "We're not in any hurry.  We've got patience and discipline."

When asked later whether he considered Qwest's battle for Verizon over, Mr. Notebaert said, "We've got a business to run and we're very focused on where we are."

Write to Dionne Searcey at dionne.searcey@wsj.com