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DSL News
Directory sale boosts Qwest net income to $1.8 billion
Article #: 6
| Date: | | | Written By: | CATHERINE TSAI | | Article: | Qwest Communications International Inc. swung to a $1.8 billion profit third quarter because of the sale of its phone directory business while revenue dipped amid strong competition.
The mixed results were in line with expectations of analysts who said Qwest - still the target of an ongoing federal probe of accounting practices - faces significant challenges from wireless, cable and other phone companies.
"The decisions of the US West management team in the 1980s to sell its wireless assets haunt this company far more than any recent issues," Janco Partners analyst Tom Friedberg said.
Qwest merged with US West, a Baby Bell, in 2000.
The Denver-based Qwest earned $1.05 per share for the July-September period versus a loss of $123 million, or 7 cents a share, a year earlier.
The latest profit figures included a gain of $2.5 billion for the completion of the second half of the sale of QwestDex, which Qwest agreed to sell to private investors last year.
Without the gain from the QwestDex sale and charges related to the wireless network and unconditional purchase obligations, Qwest would have lost between $100 million and $150 million, Friedberg said.
Revenue for the quarter totaled $3.6 billion, down from $3.7 billion a year earlier, even as data and long-distance services revenue grew in its 14-state local service territory, where it has gained federal approval to offer those services.
Analysts credited lower prices and rollouts of availability of Qwest's high-speed DSL Internet service for helping Qwest add 41,000 lines in the quarter for 7.6 percent growth from the second quarter.
"We are confident with the foundation of customer service we have built," said Richard C. Notebaert, Qwest chairman and chief executive. "We believe that by improving the customer experience and delivering a comprehensive set of voice, data and video solutions, we will become the first choice for customers' communications needs."
Qwest had an operating loss of $523 million for the quarter in contrast to an operating profit of $76 million in the third quarter 2002 because of one-time charges of $393 million to end arrangements with Calpoint and ICG Communications as well as a $230 million impairment charge for its wireless network. The impairment charge comes because Qwest expects its network to get less use now that it is offering wireless service on Sprint's network.
The end of the Calpoint and ICG arrangements could add $400 million to Qwest earnings next year, Friedberg said.
Qwest also gained federal approval to begin providing long-distance services to businesses in its region on its own network this month, which Notebaert said would save Qwest $10 million to $15 million a month.
The company said the number of its access lines dropped from 17 million in 2002 to 16.3 million in 2003, including a loss of 145,000 due to the WorldCom bankruptcy.
The company also announced a tender offer for up to $2.25 billion for several categories of notes. Officials said when that payoff of outstanding debt is completed, Qwest will have reduced its total debt by more than $7 billion since the end of the third quarter of 2002, saving an estimated $100 million annually in net interest expenses.
In trading on the New York Stock Exchange, Qwest shares were up 30 cents to close at $3.70.
Notebaert also railed against conditions surrounding an emerging competitor: those who offer consumers phone service over the Internet using technology known as Voice over Internet Protocol, or VoIP.
A federal court ruling in Minnesota blocked attempts to subject a VoIP provider to the same regulatory obligations and fees Qwest and other traditional phone companies must charge.
The ruling allows VoIP providers to offer phone service for up to 30 percent less than what traditional phone companies can charge, Notebaert argued.
Qwest has decided to fight back by offering VoIP in Minnesota, beginning in December.
Jefferies & Co. analyst Richard Klugman characterized it as more of a political play to highlight inconsistencies between regulation of providers of traditional and Internet phone service.
"They don't see this as an opportunity to run a new business. They see it as an opportunity to raise legitimate questions about how this industry will be regulated," he said.
Notebaert said, "We think entry into VoIP might just be the opportunity to break up the massive regulatory logjam that exists today while providing customers services they want at savings of possibly even 30 percent."
The Securities and Exchange Commission has been investigating Qwest and its accounting practices since early last year.
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