Bundles and Video Drive Qwests Third Quarter Profits

Powered by strong gains in selling bundles and video services, Qwest Communications International Inc. announced Tuesday a $194 million gain for the third quarter compared to a loss of $144 million for the same period a year ago.

The company has benefited from bundles for SMBs as well as video-driven package deals for residences. Its marketing alliance with DIRECTV Inc. has paid sizable dividends enabling Qwest, which serves as an expansive and often rural footprint, to provide integrated TV services.

“Customers are embracing our higher-value, higher ARPU products that contribute to our revenue while our cost structure and investments remain focused and rational,” said Richard C. Notebaert, Qwest chairman and CEO.

The current quarter includes a benefit of $92 million from a tax-sharing settlement and a severance charge of $43 million.

Third-quarter capital expenditures totaled $394 million, compared to $445 million in the third quarter of 2005, with a continued focus on the proportion spent on broadband to enable higher speeds and footprint expansion.

Capital spending in 2006 is expected to approximate the 2005 level as the company continues to focus on supporting high-service levels and what it called disciplined investment in key growth areas, which includes about 40 percent of wireline spending focused on broadband.

Since the launch of new bundles in 2005, Qwest said it has experienced measurable success in growing the number of customers who subscribe to more than one service. Qwest’s bundled offering includes digital voice, high-speed Internet access, a national wireless offering and integrated TV services through Qwest’s own ChoiceTV or the agreement with DIRECTV.

The company said its bundle penetration increased to 56 percent in the quarter, compared to 50 percent a year ago. Meanwhile, Qwest added, sales of voice packages plus three or four products continue to drive significant growth. Customer demand for value-added services is driving higher consumer ARPU, which increased 7 percent to $50 from $47 a year ago.

Qwest said it continues to see growth from customer connections as a result of bundling and localized sales initiatives. Qwest’s customer connections — which include consumer and small-business primary and secondary access lines, high-speed Internet subscribers and wireless and video customers grew by 121,000 and 344,000 from the year ago quarter, marking the fourth consecutive quarter of year-over-year increases.

Total DIRECTV subscribers reached 311,000 in the quarter, up 45 percent from the second quarter and more than three times from a year ago, according to Qwest.

In the past quarter, Qwest even launched a multi-service bundle targeted at gridiron action fans.

In August, the company, in coordination with DIRECTV launched, the Qwest football bundle. This package includes Internet service, digital voice (unlimited local and long-distance service) and DIRECTV programming, including its college football and exclusive NFL package subscriptions.

Qwest benefited from strong demand, particularly in the conversion of customers from dial-up to broadband. The company added more than 175,000 high-speed Internet lines in the third quarter. This represents a 10 percent increase and a 47 percent increase from last year in total subscribers. This month, the company reached total subscribers of 2 million.

In July, Qwest launched the “Price for Life” promotion that offers Qwest Choice DSL Deluxe (1.5mbps) for new customers who sign a two-year term commitment, a fixed price for life (unless they terminate, change service or change ISPs). Due to the strong response to this promotion, Qwest expanded “Price for Life” in October to new Qwest Choice DSL Premium (3mbps to 5mbps) customers.

Qwest continued to invest in its high-speed Internet footprint as well as increase the speeds available to customers. Currently, 82 percent of Qwest’s households are eligible for broadband services, up from approximately 67 percent at the end of 2004 with growing focus on

Qwest Communications International Inc.

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