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Qwest's earnings tumble by 35%
The telecom suffers from slowing growth in broadband, losses of land-line customers and higher tax expenses.

By Kimberly S. Johnson
Denver Post
Wednesday, May 7, 2008

Slower broadband growth and increasing land-line losses combined with higher tax expenses as Qwest reported a 35 percent drop in first-quarter net income Tuesday.

The results sent shares of the Denver-based telecommunications company down 6 percent, or 32 cents, to close at $5.04.

Qwest earned $157 million, or 9 cents a share, in the first quarter, down from $240 million, or 12 cents a share, in the same quarter a year ago.  Revenue was also down 1.4 percent.

While Qwest's tax expenses rose from $2 million in the first quarter of 2007 to $99 million this year as it began recording income-tax expense at normal rates, growth was sluggish, said Janco Partners equity analyst Donna Jaegers.

"What the stock reacted to was the operating numbers underneath," she said.

Overall revenue fell 1.5 percent to $3.4 billion from $3.45 billion in 2007, which the company said was because of increased competition in the long-distance business and industry consolidation.

Chief financial officer John Richardson said Qwest would work its way through "the challenging economic environment" that exists nationwide.

But the company didn't say if losses were a result of a struggling economy.

"I was hoping they would say more about the economy.  Qwest didn't share information on bad disconnects," Jaegers said, referring to accounts shut off for nonpayment.  "It's hard to have a lot of confidence."

Qwest reported 90,000 new Internet subscribers, including 13,000 customers signing up for the company's new fiber-to-the-node service, which offers faster speeds.  While those increases helped offset an 8.3 percent decline in land-line services, they're significantly lower than the 167,000 new broadband customers Qwest added in the first quarter of 2007.

The company expects higher profit margins from its partnership with Verizon Wireless, which it announced Monday.  Chief executive Ed Mueller said Verizon's 4G services would be attractive to Qwest customers.

He didn't expand on financial details of the agreement, or say how Qwest would share revenues with Verizon.

"We like their retail presence and their attitude to co-brand with us and be a partner in our out-of-region retail space," Mueller said.  "Verizon is a very powerful player in the East, and that's attractive."

Kimberly S. Johnson: 303-954-1088 or kjohnson@denverpost.com

http://www.denverpost.com/business/ci_9178537