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Qwest CEO Says Cost Cutting Will Continue

Raymond McConville
NXTcomm News Analysis
Raymond McConville
6/9/2008

Qwest Communications International Inc. (NYSE: Q)'s plans for organic growth may be on hold a while as CEO Ed Mueller says the economy is going to make for tough sledding in the weeks and months ahead.

Speaking at a Deutsche Bank AG Technology conference, Mueller warned that Qwest would be on the lower end of its revenue and EBITDA guidance at the end of 2008 thanks to the recent economic downturn. “We’re holding our own,” said Mueller. “With the economic trends, while [wireless] substitution continues, we now see that by the end of the year, we’ll be at the lower end of our guidance.”

Analysts in the crowd called out Mueller for not yet delivering on expectations that he’d find ways to grow Qwest, instead of continually finding more to cut. Mueller acknowledged that he too had expected revenue growth to come sooner, but admitted it won’t come this year.

“I thought we would have a chance in the third or fourth quarter this year,” said Mueller. But he added that the economic news of late doesn't help.

Mueller also said Qwest isn’t done cutting costs. “A big part of our expense reduction is facility costs, and I do believe there is more room there."

Mueller continued Qwest’s recent message that, while overall revenues are flat, its key focus areas of video, Internet, and data have demonstrated strong growth. He pointed out that in the first quarter of this year Qwest added 13,000 subscribers to its recently upgraded fiber-to-the-node (FTTN) network and that future pair bonding upgrades will allow the company to deliver four to five HD streams to each individual home and, as a result, bring in even more new customers. (See Qwest to Spend up to $300M on FTTN.)

But despite what Mueller says has been a successful foray into FTTN, he cautioned that further capex investments in the network should not be expected. “We’re not going to change our capex without a really compelling case."

Instead, Qwest will focus more on its partnerships to bring in new revenues, as it hopes its new relationship with Verizon Wireless will allow it to sell more wireless data to its customers. (See Qwest Not Satisfied With Sprint and Qwest Ditches Sprint for Verizon.)

— Raymond McConville, Reporter, Light Reading

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