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Qwest, CenturyLink navigate landline loss in Q3

Thu, 11/04/2010 - 8:15am
Peter Svensson, AP Technology Writer

NEW YORK (AP) – Qwest Communications International and the company that's buying it, CenturyLink, on Wednesday posted results for the third quarter that showed them successfully navigating the decline of their local phone businesses.

Denver-based Qwest, the third-largest U.S. phone company by number of lines, posted its first quarterly loss since 2005, mainly due to a charge linked to the company's rising stock price. Excluding that and some other one-time effects, results topped Wall Street expectations, and the company lifted its outlook for the full year.

Monroe, La.-based CenturyLink, the fifth-largest phone company, said its profit fell 18 percent in the third quarter from a year ago, when results were boosted by a tax effect. Underlying operating earnings improved, as it managed to cut costs to keep pace with the loss of landlines.

Like other phone companies, Qwest and CenturyLink are facing a steady erosion of their customer base as households opt to rely on cell phones alone, or switch to service from cable companies. Comcast is now the country's fourth-largest landline phone company.

To gain synergies of scale that can offset the loss of phone lines, CenturyLink agreed in April to buy Qwest. The deal is set to close next year.

Since CenturyLink is paying with its own stock for the deal, Qwest and CenturyLink shares now trade in tandem, and Qwest shareholders have been benefiting from a strong rally in CenturyLink shares since the summer. CenturyLink shares rose a further 50 cents on Wednesday to $42.33, making the value of the acquisition offer about $12.2 billion. Earlier in the day, the stock hit $42.14, the highest level since 2007.

CenturyLink's rising stock forced Qwest to take a charge of $229 million related to debt that can be converted into its stock.

Including that charge, Qwest posted a loss of $90 million, or 5 cents per share. That compared with earnings of $136 million, or 8 cents per share, a year ago. But excluding one-time items, Qwest posted earnings of 11 cents per share – ahead of analysts' average estimate for profit of 10 cents per share, according to a Thomson Reuters poll.

Qwest's revenue fell 4 percent from a year ago to $2.94 billion. That topped analysts' average estimate of $2.9 billion and also marked an increase from the second quarter, the first such quarter-to-quarter uptick since 2007.

Revenue from the traditional phone company segment was flat with the previous quarter, helped by seasonal trends and higher broadband uptake. The division that serves the government and large business customers posted a small year-over-year increase. Revenue was stable quarter-on-quarter in the business that provides long-haul voice and data transport, but it fell 8 percent from last year.

Looking ahead, Qwest now expects to report a lower rate of revenue decline in the fourth quarter, better than the low- to mid-single-digit decline it previously forecast.

CenturyLink, which was called CenturyTel until May, said its net income was $231 million, or 76 cents per share, in the July-to-September period. That was down from $281 million, or 94 cents per share, a year ago.

Excluding costs incurred in the acquisition of Embarq last year and the pending deal to buy Qwest, earnings were 83 cents per share, beating the average forecast of analysts polled by Thomson Reuters by 2 cents.

Revenue fell 6.8 percent from a year ago to $1.75 billion, matching Wall Street forecasts.

For the fourth quarter, CenturyLink expects earnings of 73 cents to 77 cents per share, compared with the 79 cents per share expected by analysts as polled by Thomson Reuters. CenturyLink expects revenue of $1.69 billion to $1.71 billion, slightly below the $1.72 billion expected by analysts.

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