Competition, Economy Denting Qwest Revenue
Heightened cable competition, wireless substitution and the economic slowdown hurt Qwest Q2, company officials said in a Wednesday earnings call. The company’s mass-market revenue fell 3 percent year-over-year to $1.5 billion. Wholesale revenue slid 8 percent to $823 million.
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Overall, Qwest Q2 revenue fell 2 percent year-over-year to $3.38 billion, it said. Revenue from voice fell 9 percent to $1.8 billion. At the end of Q2, Qwest had 12.2 million access lines, 8.2 percent fewer than a year ago. Qwest is reducing employee count and marketing to offset access line loss, CEO Ed Mueller said: “We're not unwilling to do the hard things here.”
Qwest faces more competition, Mueller said. Cable overlaps with 80 percent of Qwest’s market, and has about a 20 percent share of wireline business, said Mueller. And the number of wireless-only households keeps rising, he said. Wireless substitution, now about 15 percent, could reach 25 percent by 2012, he said. A tougher economy also hurt Qwest, Mueller said. In Arizona, a major Qwest market, new housing is dropping “precipitously,” he said.
Qwest’s corporate division was a bright light in Q2, said officials. Business revenue grew 5 percent year-over- year to $1 billion. Division income was $394 million, up 2 percent from the year-ago period. Qwest is doing more government business under the General Service Administration Networx contract, Mueller said. In Q2, Qwest got a Social Security Administration contract worth up to $100 million over 10 years, he said.
Revenue is shifting toward data, Internet and video services, said Chief Financial Officer John Richardson. Revenue from those services grew 9 percent year-over-year, and now make up 40 percent of the carrier’s operating revenue mix, up from last year’s 36 percent, he said.
Qwest lowered full-year 2008 guidance due to Iowa flood- related costs and its new relationship with Verizon Wireless. Overall, Qwest expects revenue to fall at most 2.5 percent. The flood cost Qwest about $5 million in Q2, and flood- related restoration work will cost $15-$20 million, net of insurance proceeds, through the rest of the year, it said. Meanwhile, Qwest expects a 20 percent drop in wireless revenue, as it shifts from an MVNO model with Sprint Nextel to a resale model with Verizon, Richardson said.
Qwest began selling Verizon cellphone service last week, but won’t roll out service to its entire service area until October or November, Mueller said. The Verizon relationship should make Qwest more competitive in Q3, he said.