Cost-cutting, bundles give Qwest shot in arm
By Ross Wehner, Staff Writer
Denver Post
Wednesday, August 3, 2005


Qwest chief executive Richard Notebaert saw his cost-cutting campaigns and newly launched consumer bundles pay off in the company's second-quarter earnings released Tuesday.

But two months after it dropped out of the takeover battle for MCI, analysts wonder how Qwest will fare in a fast-consolidating telecom market.

The company's second-quarter financials included $164 million in losses - much less than the $776 million reported for last year's second quarter.

Revenues, meanwhile, rose from $3.44 billion in second quarter 2004 to $3.47 billion last quarter, in part because of Qwest's "quadruple play" bundles launched in May.

The widely advertised offering allows consumers to get local and long-distance phone, high-speed DSL Internet, cellphone service and satellite TV all on one bill for one fixed price.

"We are making demonstrable progress," Notebaert said.

But some analysts focused on the fact that Qwest, like the other Bells, continues to lose access lines as customers defect to a growing number of Internet and cable phone providers.

"It was a mixed result with lower-than-expected DSL and (long-distance) adds and higher-than-expected line losses," said Deutsche Bank analyst Victor Shvets on Tuesday.

Sanford Bernstein analyst Jeff Halpern issued a research note on Tuesday that called Qwest's earnings statement "solid" with a single important caveat: "The key risk for investors is Qwest's long-term strategy within the consolidating industry."

During a Tuesday conference call with analysts, Notebaert mentioned a possible restructuring of the company, which is saddled with $14.7 billion in debt.

"We will continue to evaluate opportunities to utilize equity to improve our capital structure but only, and I mean only, if it make sense for our equity-holders," Notebaert said.

Denver-based telecom analyst Tom Friedberg said a restructuring - in which Qwest could pay off debt-holders by issuing new stock - already makes sense.

"Qwest can't reignite the growth engine of this company until it reduces its debt," Friedberg said. "And free cash flow is not enough."

Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com.

http://www.denverpost.com/business/ci_2908766