Qwest, on Profit Drop, Focuses on Wireless, FTTN

It didn’t help that Tuesday’s call with analysts “was scarce on much new info,” according to a client memo issued by Donna Jaegers, director of research for Janco Partners.

“Mueller is harder to pin down than Greenspan," Jaegers wrote on May 6. "I think Qwest will revisit its recent price lows until they can show more progress on taking share in the enterprise market."

Indeed, Mueller is counting on the federal government’s Networx contracts and Qwest’s out-of-region focus to bolster the enterprise, or business markets, division. Activity from Networx has been slow, he said, “but we think the logjam has finally broken loose.”

Networx is the $20 billion federal initiative to update agencies’ networks and capabilities. Qualified bidders were named a year ago and only now are agencies choosing which companies they want to handle the upgrades.

Meanwhile, like its counterparts, Qwest’s wholesale unit floundered somewhat. Income fell 2 percent and sales were down 7 percent, but Mueller said he is encouraged by progress in that branch. For example, data and Internet sales rose 3 percent.

“This is really cooking well,” said Mueller.

There’s still room for improvement. The mass markets unit struggled as voice and wireless declines offset gains of 20.7 percent from residential data, Internet and video sales. Qwest is hoping its $300 million FTTN build-out will help the rest of the year’s financials; Mueller said the company already is seeing results – Qwest added 90,000 net DSL subscribers in the first quarter, 13,000 of whom signed up for the FTTN services. But Jaegers called those totals “anemic,” because they were less than the fourth quarter’s 167,000 DSL net adds.

Meanwhile, Qwest is talking about raising prices and, like its rivals, is dealing with a weakening economy. Consumers will want to keep an eye on their bills – Mueller said price hikes are in the works.

“We believe there is room in the market and where we can, we’re taking them,” he told analysts.

CFO Richardson further said the slowing economy has had little effect on Qwest. Bad debt writeoffs remain in line with third- and fourth-quarter 2007 percentages, he said.

“Our goal is to work through the challenging economic environment that exists nationwide,” Richardson said.

Qwest likely will take more economy and price-increase questions on May 22, when it holds its annual stockholder meeting in Denver.

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