Qwest CEO: No Need for New U-verse

It might seem strange for a company to double its earnings while seeing a decline in revenues. But for Qwest Communications International Inc. (NYSE: Q), it was just another quarter. (See Qwest Boosts Q2 Profit.) And though it was disappointing, it didn't appear to make Qwest's management warm up to the idea of competing more directly with cable in the TV business.

For the second quarter of 2007, Qwest earned $240 million, or 13 cents per share, on revenues of $3.46 billion. In the same quarter last year, Qwest earned $117 million, or 6 cents per share, on revenues of $3.47 billion.

Table 1: Qwest's 2Q07 Scorecard
2Q07 2Q06 Y/Y Change
Revenue (Millions) $3,463 $3,472 -0.26%
Earnings (Millions) $240 $117 105.13%
GAAP EPS $0.13 $0.06 116.67%
Access Lines 13,272 14,283 -7.08%
Broadband Subscribers 2,405,000 1,798,000 33.76%
Video Subscribers 572,000 259,000 120.85%

But analysts polled by Thomson Financial were expecting earnings of 15 cents per share and Qwest's stock is taking a slight hit on the disappointment.

One of Qwest's biggest challenges continues to be recouping the loss of its traditional access lines with growth in other services. Fellow incumbent carriers AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) have been able to do this mainly through their extremely successful wireless services. (See AT&T's Wild About Wireless in Q2 and Verizon Has Marginal Concerns in Q2.) But Qwest does not own its own wireless service and is trying to recoup these losses through gains in broadband and other growth services.

Qwest's outgoing CEO Dick Notebaert reiterated today that his wireless strategy of partnering with Sprint Corp. (NYSE: S) will not change saying that the company is in wireless for bundling only. He also gave hints of life after his retirement saying he expects the new CEO will likely maintain the same bundling strategies the company already has in place both with Sprint and DirecTV Group Inc. (NYSE: DTV).

Most notable were Notebaert's comments that dismissed the idea that Qwest would pursue a video strategy similar to Verizon's FiOS or AT&T's U-verse under Qwest's next CEO: "Why in the world would you go do that and incur all that expense when you've got YouTube and the direction the world is heading and can still do the broadcast model with more HD than anywhere else with DirecTV. I can't find any logic for us doing it."

Shares of Qwest are down $0.22 (2.58%) to $8.31 in midday trading.

— Raymond McConville, Reporter, Light Reading

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