Qwest's cost cutting reaps Q3 rewards despite lower revenues

Qwest reported its Q3 09 earnings today, and at first blush you might not think the news is all that good. The Denver, Co.-based telco reported that its revenue declined 9.6 percent, a deeper loss than initial analyst forecasts. However, what Wall Street did like was an increase in the ILEC's quarterly profit and its dedication to cut costs.

During the quarter, Qwest reported slightly lower profits of $136 million, or 8 cents a share, down from $145 million during the same period last year. Meanwhile, Qwest's third-quarter revenue dropped to $3.05 billion versus estimates of $3.07 billion. While the service provider's bundled service offerings and a localized go-to-market approach resonated with business and residential customers, other factors such as wireless substitution, increased unemployment and a slowdown in new housing brought the company's revenue down.

Despite the revenue decrease, Wall Street liked Qwest's cost cutting plans. News of these plans drove company shares up 3.4 percent. "They're shrinking their way to greatness here," said Stifel Nicolaus analyst Chris King in a Reuters article. "It continues to be a cost-cutting story."

Qwest saw some wins and losses in its broadband, business and wholesale divisions. On the broadband side, Qwest brought on an additional 28,000 subscribers bringing total subscribers to about 3 million. Broadband growth was driven by the service provider's ongoing Fiber to the Node (FTTN) build out, which now makes up 340,000 or more than 11 percent of its overall broadband subscriber base.

Business market revenue, while declining 1 percent to $1.0 billion from the same period in 2008, was still up 1 percent sequentially. Ongoing growth in IP services boosted Qwest's strategic revenues 11 percent year over year. Finally, wholesale did not fare as well as declines in long distance voice revenue drove the segment's revenue down 14 percent to $700 million. However, Qwest believes that the deployment of fiber to cell sites for wireless backhaul services will enable it to reap revenue rewards from wireless operators that are expanding their high-speed data service portfolios.   

For more:
- see the release here [1]
- Reuters has this article [2]

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