Cable Tech

Carrier Scorecard: Impressed With Qwest?

The world's largest telcos have one thing in common: Each is in the fight of its life.

With cable companies, satellite TV providers, and Internet startups nipping away at their subscribers, these titans are making bold moves into video entertainment, investing billions in new networks, and embracing wireless technologies that, at one time, they regarded as competitive.

To help track these beasts on a quarterly basis, Light Reading is introducing the Carrier Scorecard, a way to size up each service provider's progress throughout the year. As we analyze each company, we'll assign it a grade, A through F, as if it were still in school. Cheeky, huh?

Our criteria are pretty straightforward, even if a tad subjective: To get an A you must be damn near perfect, showing double-digit growth in earnings, earnings per share (EPS), revenues, and broadband subscribers. You must have a vision and be working to make it real. You must buy us lots of drinks. Wait -- did we write that or were we just thinking it? Sorry.

Anything less than an A is nothing to be ashamed of. But double-digit shrinkage in all categories with no strategy on the horizon is a recipe for disaster -- and a big fat F.

So, as you can tell, these aren't scientific rankings, but they hopefully will help you put aside the hype and see how these carriers, challenged though they may be, are actually performing as companies.

The North American Carrier Scorecard, which follows, will soon sit in a report alongside our International Carrier Scorecard (coming soon) in our Reports section, so readers can see all the wireline carrier data for the past quarter in one convenient spot.

As format dictates, we'll provide the carrier, the grade we've given them, a write-up on how we arrived at that grade, and a table so you can see all the hard data for yourself and come to your own conclusions.

Without further ado, here are the scorecards:

Verizon: B- Verizon Communications Inc. (NYSE: VZ) is increasing its revenues and it's adding broadband subscribers at a quick clip. But the company's profits and its earnings per share (EPS) are shrinking. And analyst projections show that growth won't be coming back anytime in the next few months. (See Verizon Sees Lower Profits in Q4).

Investors haven't been too harsh about Verizon's numbers. Since Verizon's fourth-quarter earnings announcement on January 29, the stock has lost about 5 percent of its value. They get it, and so do we. The earnings dilution from the carrier's costly FiOS buildouts won't last forever -- and a better network is always worth some pain and suffering.

Like most plastic surgery, the upgrades required for FiOS are expensive, but the end result could be a younger-looking older carrier. In this quarter, though, AT&T and Qwest provided better overall performance.

Table 1: Verizon's Q4 2006 Scorecard
4Q06 4Q05 Y/Y Growth 1Q07* 1Q06 Y/Y Growth
Revenue (Millions) $22,600 $17,922 26.1% $22,446 $22,743 -1.3%
Earnings (Millions) $1,000 $1,700 -41.2% $1,573 $1,753 -10.3%
GAAP EPS $0.35 $0.59 -40.7% $0.54 $0.56 -3.6%
Access Lines 45,100,000 48,545,000 -7.1%
Broadband Subscribers 7,000,000 5,150,000 35.9%
Video Subscribers** 747,000 n/a n/a
*Projected (data provided by Thomson Financial)
** Video subscribers comprised 207,000 FiOS TV subscribers and 540,000 DirecTV subscribers

AT&T: B+ AT&T Inc. (NYSE: T) had a very strong year and earnings surged on the carrier's wireless success and on its higher than anticipated savings from the BellSouth merger. When BellSouth's earnings and revenues are added to the overall picture, AT&T's earnings and revenue growth will be substantial -- analysts' project a 21 percent EPS growth during the first quarter of 2007.

AT&T is still sticking to its projections for U-verse, and sticking its neck out in the process. It'll be a while before we see whether not having to invest as much as Verizon was a safe bet or a soggy band-aid. When AT&T reported its fourth-quarter results on January 25, the stock was hanging around $37. The stock is trading around $36 now, so no one's panicking. Yet.

Table 2: AT&T's Q4 2006 Scorecard
4Q06 4Q05 Y/Y Growth 1Q07* 1Q06 Y/Y Growth
Revenue (Millions) $15,891 $12,909 23.1% $29,568 $15,835 86.73%
Earnings (Millions) $1,938 $1,655 17.1% $2,861 $1,445 97.98%
GAAP EPS $0.50 $0.46 8.7% $0.45 $0.37 21.62%
Access Lines 21,841,000 22,068,000 -1.0%
Broadband Subscribers 8,538,000 6,921,000 23.4%
Video Subscribers** 635,000 457,000 38.9%
* Projected (data provided by Thomson Financial)
** In 2006, video subscribers comprised 3,000 U-Verse subscribers and 632,000 DISH Network subscribers, sold through AT&T.

Qwest: B+ Qwest Communications International Inc. (NYSE: Q)'s jump in earnings may have more to do with cutting expenses than growing revenues. But given Qwest's past, we'll take it. Investors are liking it, too, as its shares have gone up by about 4 percent since the carrier announced earnings about a month ago.

Like its big carrier peers, Qwest is optimistic, as it is selling more and more bundled services, and in its fourth quarter it showed a phenomenal growth in broadband subscribers.

Also encouraging is that the carrier is making noises about an access network upgrade, so maybe its subscribers will someday see a digital life more akin to what their cable-taking neighbors are getting. (See Cisco's Cure.) Maybe someday the barren lands that Qwest services will be a Utopia. (No, not that Utopia.)

Table 3: Qwest's Q4 2006 Scorecard
4Q06 4Q05 Y/Y Growth 1Q07* 1Q06 Y/Y Growth
Revenue (Millions) $3,488 $3,480 0.23% $3,492 $3,476 0.47%
Earnings (Millions) $194 -$528 136.74% $173 $88 96.59%
GAAP EPS $0.10 -$0.28 135.71% $0.10 $0.05 100.00%
Access Lines 13,795,000 14,739,000 -6.40%
Broadband Subscribers 2,138,000 1,480,000 44.46%
Video Subscribers 424,000 178,000 138.20%
* projected (data provided by Thomson Financial)

Bell Canada: C Not much good came out of BCE Inc. (Bell Canada) (NYSE/Toronto: BCE)'s quarterly scores. Earnings and revenues are off and subscriber growth is low compared to the other major carriers. The carrier did manage to keep its EPS flat -- and analysts say it'll show EPS growth again soon. Also flat has been the carrier's share price, which closed Tuesday at $26.15, not much above where its stock stood when the carrier announced earnings a month ago.

Broadband subs are growing at a 12 percent clip, video subscribers are up slightly, and the company is intent on selling off things that distract from its focus, and new service announcements continue to flow. In all, Bell Canada didn't set the world on fire, but there aren't as many reasons to make fun of the Canadians as usual. (See BCE Offers Home Monitoring and BCE Sells Telesat.) They get a C for Canada, which is better than an F for French Canada.

Table 4: Bell Canada's Q4 2006 Scorecard
4Q06 4Q05 Y/Y Growth 1Q07* 1Q06 Y/Y Growth
Revenue (Millions) $3,933 $4,232 -7.07% $3,768 $4,099 -8.07%
Earnings (Millions) $652 $756 -13.73% $397 $393 0.93%
GAAP EPS $0.39 $0.39 0.00% $0.45 $0.42 7.14%
Access Lines 12,056,000 12,585,000 -4.20%
Broadband Subscribers 2,462,000 2,195,000 12.16%
Video Subscribers 1,820,000 1,727,000 5.39%
* Projected (data provided by Thomson Financial)

— Raymond McConville, Reporter, and Phil Harvey, Managing Editor, Light Reading

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minnehot 12/5/2012 | 3:13:01 PM
re: Carrier Scorecard: Impressed With Qwest? You missed a few metrics to properly evaluate the respectives companies, such as capex and revenue growth.

Qwest has acheived its results by reducing Capex to barely keeping the dial tone on levels and reducing headcount and moving jobs to India. The debt remains at $14 Billion with access line losses increasing (not decreasing. No wireless or video story.. this company is dying, eating its seed corn, all in its effort to please Wall Street. The next few earnings reports will tell the tale - revenues dropping like a rock.
DCITDave 12/5/2012 | 3:12:59 PM
re: Carrier Scorecard: Impressed With Qwest? re: "this company is dying, eating its seed corn..."

But it had a good quarter. So we'll see what happens next quarter and beyond. Should make for some interesting reading if they're as dead on their feet as you believe.
OneMoreByte 12/5/2012 | 3:12:59 PM
re: Carrier Scorecard: Impressed With Qwest? > Qwest has acheived its results by reducing Capex
> to barely keeping the dial tone on levels

I always wondered why my parents, who are Qwest customers, could never get DSL service at their home in suburban Portland, Oregon. They are now satisfied cable modem users who nearly ditched their POTS line.
minnehot 12/5/2012 | 3:12:57 PM
re: Carrier Scorecard: Impressed With Qwest? You need to look at what Qwest mgt has actually done. It is slashed capex to levels well below any BabyBell in history. This action, along with the lowest headcount per customer/access line in BabyBell history, we can see how mgt is eeking out a profit on declining gross sales. Qwest has no wireless assets like AT&T and Verizon. They have no video strategy because they have no access to capital markets to deliver IPTV because of the highest debt ratio of any telecom company in the USA today, save Level 3. Access line losses are INCREASING. Cableco triple-play competition is just beginning in Qwest territory - wireless substitution from companies like Cricket and Metro PCS are only now beginning to appear in Qwest territories. Qwest has no growth vehicles now or into the future. What it does have is a dead bang certainty that it will continue to lose access lines at a rate of 7% qtr in and qtr out. Combine it all and this company is dying plain and simple.
DCITDave 12/5/2012 | 3:12:55 PM
re: Carrier Scorecard: Impressed With Qwest? By their actions (and lack of aggression) I think a lot of people assume they're trying to prep themselves for sale.

Any thoughts on that?
DCITDave 12/5/2012 | 3:12:54 PM
re: Carrier Scorecard: Impressed With Qwest? A BobbyMax classic on Qwest:

DCITDave 12/5/2012 | 3:12:48 PM
re: Carrier Scorecard: Impressed With Qwest? Thanks. That's why we're doing this, really, is to show what carriers will do when reality finally catches up to the numbers.

Without exploiting their own networks for sustainable growth, these guys are eventually going to run out of people to layoff.

stephencooke 12/5/2012 | 3:12:48 PM
re: Carrier Scorecard: Impressed With Qwest? Hi Phil,

I like the score cards, keep them going!

Earnings reports are a game that is played better by some than others. Are their rosy numbers achieved by cost cutting & layoffs or by subscriber growth. Accelerating landline losses are a really bad thing for these guys. In many cases, adding DSL/Internet customers cannibalizes their landline voice revenues via Vonage, Skype, their own VoIP service, etc.

Bell Canada is in disastrous shape. Rogers (provides BOTH cable and wireless) in Toronto and Videotron (providing FTTH in Montreal) are making significant progress in Bell's 2 biggest markets. The video that Bell offers is ExpressVu (a satellite company). They tried to convert to a trust structure to reduce tax burdens but that failed.

Telus had a 'good' quarter, again due almost exclusively to their wireless business and Alberta's economic strength (population increasing drastically). Once the economy slows down and if Shaw Cable provides wireless service (possibly in partnership with Rogers) those 5%/year landline losses are really going to hurt.

Keep up the good work!

paolo.franzoi 12/5/2012 | 3:12:47 PM
re: Carrier Scorecard: Impressed With Qwest?
No company on the planet would be stupid enough to buy an operating company from Dick Notebart after the Ameritech debacle that SBC faced.

sjtechid 12/5/2012 | 3:12:47 PM
re: Carrier Scorecard: Impressed With Qwest?
This must be a naive question. But how can I find out which geographical areas the RBOCS are strong in? i.e where do they offer services?

I agree with Phil, the management within Qwest is probably positioning the company for an aquisition. 2/3 quarters of profit(by cost reduction) and they stand a chance.
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