Qwest Earnings Rise 37% as it Culls Low-End Customers
By Roger Cheng
The Wall Street Journal
Wednesday, April 29, 2009
Qwest Communications International
first-quarter profit rose 37% through cost cuts, but the
telecommunications provider faced intense pressure on its
company continues to see a drop in revenue, underscoring the
difficulties that traditional phone services face as consumers
and businesses increasingly cut the cord, opting instead for
just a cellphone or cable phone service.
"Revenue performance missed muted expectations owing to greater
deterioration in the mass-markets and wholesale-business
segments," said Goldman Sachs analyst Jason Armstrong.
Qwest, however, pointed to the improvement in earnings.
Chief Executive Edward Mueller said the company was willing to
lose lower-end customers to boost earnings. "Half of our
annual decline in revenue was due to initiatives to improve
profitability and reduce low-margin revenue," Mr. Mueller told
analysts in a conference call.
Qwest on Wednesday posted net income of $206 million, or 12
cents a share, up from $150 million, or eight cents a share, a
Revenue decreased 6.6% to $3.17 billion. The company
recently said revenue would come in "modestly" below Wall Street
expectations, which at the time, were $3.25 billion.
Executives on Wednesday touted free cash flow of $339 million,
which widely beat Wall Street and company expectations.
Stronger cash flow suggests continued confidence in its
dividend, balance sheet, and continued ability to make capital
Qwest, unlike rivals AT&T Inc. and Verizon Communications Inc.,
doesn't have its own television or wireless offerings. It
bundles its core Internet and phone services with television
service from DirecTV Group Inc. and cellphone service from
And like its two larger peers, Qwest is losing ground with land
lines. Its number of lines fell 10% to 11.2 million in the
first quarter. Qwest added 42,000 high-speed Internet
customers, which was below Wall Street expectations.
The weak housing market also hurt Qwest as it quashed demand for
phone lines. The company is hoping to combat its loss of
land lines through growth in data and Internet services and a
slow investment to upgrade its network with faster fiber-optic
It also is hoping to extend cost cuts, including a reduction in
its work force and reductions in facility and corporate
The number of orders from business customers fell, yielding less
revenue, said Chief Operating Officer Thomas Richards. He
expressed confidence in the improving sales cycle this quarter.
Wholesale-data and phone service was the weakest link from a
revenue perspective. But Mr. Richards pointed to a
targeted elimination of certain customers that were no longer
Last year, Qwest began a transition of its stand-alone wireless
customer base to Verizon Wireless, a joint venture between
Verizon and Vodafone PLC. Qwest moved nearly 100,000
customers to Verizon Wireless in the first quarter. The
company previously had a wireless agreement with Sprint Nextel
Corp., and plans to shut down that service in the fourth
— Kerry E. Grace and Kevin Kingsbury contributed to this
article. Write to Roger Cheng at