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Qwest 3Q Sales, Profit Down on Economic Headwinds

Qwest Communications International Inc.‘s (Q) sales and profit both fell in the third quarter of 2009 but still beat Wall Street’s expectations because of cost reductions that included layoffs.

As a result, operating expenses dropped by $356 million to reach $2.6 billion. Qwest said that was due to savings on facilities overhead, lower long-distance volumes, the wind-down of the wireless MVNO platform and job cuts. Qwest ended the quarter with 31,300 employees, a decline of 3,400, or 10 percent, from last year. Net debt sunk just slightly, from $12.3 billion to $12.1 billion.

Overall, the Denver-based carrier’s net income slid 6 percent to $136 million as more people in its 14-state region lost their jobs, swapped out landlines for wireless access and reduced household expenses. Sales suffered, too, plunging 9.6 percent to $3.05 billion, as 328,000 customers dumped Qwest services.

Qwest executives tried to stay upbeat, though.

“We are optimistic about our prospects as the economy begins to improve in the quarters ahead,” Ed Mueller, Qwest chairman and CEO, said in a prepared statement.

Indeed, Qwest is counting on its business markets group, which sells to enterprises, to help it boost performance over the next few quarters. Qwest is making a name for itself as a hosted services provider to big businesses and government agencies, a strategy it hopes will translate into big bucks over the coming years.

Nonetheless, thanks to the ailing economy, the business markets division saw lower earnings results than it might have liked. Revenue amounted to $1 billion, down 1 percent from the year-ago period. IP services stood out as the top seller, and legacy revenue – no surprise – brought in far less money, with sales slumping 9 percent.

The numbers were not as good in the wholesale division. That segment’s revenue dropped to $700 million, a 14 percent decline. Qwest said that was mostly because of less long-distance demand. Income remained even with the second quarter.

Finally, the mass markets group faced the most problems. Revenue from consumers dove 14 percent to $1.2 billion, as people grappled with higher unemployment, a bad housing market and other recession-fueled factors. Nonetheless, Qwest did add 28,000 net new broadband subscribers for a total of 3 million; it also added 340,000 net new fiber-to-the-node customers; and it signed 15,000 net new DirecTV users.


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