Cost cuts help Qwest trim loss

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Cost-cutting helped Qwest Communications, the third-largest US regional phone group, narrow its losses sharply in the third quarter to $144m, or 8 cents a share, compared with $569m, or 31 cents, previously.

The group said it had also agreed in principle to a $400m settlement of a shareholders’ class-action lawsuit over charges of financial fraud. The suit is the largest outstanding legal action facing the company.

Qwest agreed to pay $250m last year to settle security regulators’ charges that it inflated revenues and artificially lowered costs between 1999 and 2002 to meet
financial performance projections.

Excluding a one-time charge to cover restructuring and other costs, losses in the latest period were 7 cents a share. Revenues rose 1.6 per cent to $3.5bn, boosted by strong gains in broadband DSL subscriber numbers, long-distance penetration and consumer service bundles.

Qwest added 150,000 DSL subscribers during the quarter, bringing its total to 1.3m and expanded its DSL “footprint”. It also added 74,000 long-distance lines, but, like other traditional phone companies, it faces the continuing loss of access lines – it lost 154,000 during the period.

Business revenues benefited from the recognition of $52m in revenues from a large but relatively low-margin government contract.

Third-quarter operating expenses fell 9 per cent to $3.3bn mainly reflecting productivity and operating efficiency improvements.

“Our significant progress in productivity continues to drive cost reductions and steady margin improvement,” said Oren Shaffer, chief financial officer.

Quarterly capital expenditure totalled $445m and the company generated $675m in cash from operations.

“We continue to improve free cashflow putting us on track to meet our goals for 2005 and for further free cashflow growth in 2006,” said Mr Shaffer.

Qwest, which has been steadily reducing a debt burden inherited by the current management, ended the period with net debt of $14.3bn, down from $15.2bn a year earlier and from $26bn a few years ago.

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