3rd UPDATE: CenturyLink 4Q Profit Falls, Qwest Swings To Loss
February 15 2011 - 1:17PM
Dow Jones News
CenturyLink Inc. (CTL) posted a slight decline in its
fourth-quarter profit as the rural telecommunications provider
continues to lose traditional phone customers.
CenturyLink, like many of its fellow telecoms, has been looking
to offset its declining landline revenue with Internet services,
which continue to see demand. To further guard against declines in
its legacy phone business, it agreed to acquire Qwest
Communications International Inc. (Q), which swung to a
fourth-quarter loss due to the same trends.
CenturyLink and Qwest are in the final stages of the deal, which
has cleared several state and federal regulatory hurdles but still
needs approval from the Federal Communications Commission and other
state agencies. The deal is expected to close in April.
Both companies are ceding traditional phone lines as consumers
swap out their fixed lines for cellphones. As a result, CenturyLink
said it has struck an agreement to sell Verizon Wireless services
to its customers, which begins this spring. While financial terms
weren't disclosed, Qwest already has a similar agreement with the
carrier in which it gets paid a monthly recurring fee for each
customer it signs up. Verizon Wireless is a joint venture between
Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD).
CenturyLink reported a fourth-quarter profit of $225.2 million,
or 74 cents a share, down from $230.2 million, or 77 cents a share,
a year earlier. Excluding acquisition costs and other impacts,
earnings fell to 76 cents from 95 cents a share as revenue dropped
6.4% to $1.72 billion.
The company in November forecast earnings of 73 cents to 77
cents a share on revenue of $1.69 billion to $1.71 billion,
estimates that were behind analysts' views at the time.
For the quarter, CenturyLink said the number of high-speed
Internet customers at year's end rose 7.1%, or 158,000, to 2.4
million from a year earlier, as total access lines fell 7.6% to 6.5
million.
The company is also pushing its Prism TV service as another
growth driver. Roughly 60% of its households can get the service,
and Chief Executive Glen Post said he expects to have the service
available in 1 million households by the end of the year.
"We're pleased with the adoption of Prism," he said.
The company also forecast a 2011 revenue decline of 4% to 5%.
Analysts polled by Thomson Reuters most recently projected a
revenue drop of 5% to $6.69 billion. Post noted that the lower
revenue came from lower access revenue, further line losses, and
lower revenue from the universal service line fund.
Qwest, meanwhile, reported a fourth-quarter loss of $161
million, or 9 cents a share, compared with a year-earlier profit of
$108 million, or 6 cents a share. One-time items including
stock-based compensation and merger costs took 21 cents a share off
the last quarter and 2 cents from the prior-year quarter. Revenue
declined 3.2% to $2.9 billion.
Analysts polled by Thomson Reuters had most recently forecast
per-share earnings of 10 cents a share on $2.9 billion in
revenue.
Qwest suffered declines in both its landline and DSL businesses,
although its high-speed Internet business continued to grow thanks
to stronger adoption of its fiber-optic-based service. It also
added 42,000 Verizon Wireless customers and 40,000 DirecTV Group
Inc. (DTV) customers through similar reseller agreements.
Barclays Capital analyst James Ratcliffe said the broadband and
wireless numbers were lower than expectations.
Qwest, however, said it typically sees a seasonal lull in the
fourth quarter.
"Overall, I'm happy with the high-speed Internet world," Chief
Executive Ed Mueller said in an interview.
Chief Operating Officer Teresa Taylor said the company wouldn't
rock the boat on its investment in upgrading its network with
fiber-optic lines as the company nears the close of the merger.
One of the key reasons CenturyLink was interested in Qwest was
its stronger business presence, which Qwest has built up over the
past few years. Qwest's business-markets division posted a 1%
increase in revenue over a year ago, showing better performance
than its larger peers Verizon and AT&T Inc. (T).
CenturyLink fell 0.9% to $44.72, while Qwest fell 0.8% to
$7.36.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
(Tess Stynes and Drew FitzGerald contributed to this article.)
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