Qwest, CenturyTel Report New Line Losses as They Work on Merger

Qwest’s Q1 profit fell 81 percent year-over-year to $38 million, but CenturyTel, which has agreed to buy that company for $22.4 billion, said quarterly earnings tripled to $252.6 million. The companies continued to lose landline customers.

Qwest said its profit plunge resulted largely from a health-care charge. CenturyTel credited its increase largely to the acquisition of Embarq. CenturyTel’s access lines decreased 8.4 percent from a year earlier, but broadband customers grew 8.9 percent. Qwest closed out Q1 with 9.7 million total access lines, down 11 percent from a year earlier. Broadband customer additions were 40,000. Broadband services are “a lifeline” for wireline operators, said Wells Fargo Securities analyst Jennifer Fritzsche.

Landlines continue disappearing fast, though the losses are slowing in some places, Qwest executives said on a conference call. The company has seen encouraging signs of increased customer activity in the business market, and revenue trends are improving in other areas, too, said Chief Operating Officer Teresa Taylor. Access losses are moderating as bundled services are made available in additional markets and the economy starts to pick up, CenturyTel executives said.

The proposed purchase deal would aid the delivery of differentiated services, Qwest CEO Ed Mueller said. The combination would increase free cash flow, diversify the revenue base and improve CenturyTel’s competitive position, said its CEO, Glen Post. The merger proposal is expected to get a quick regulatory approval with conditions (CD April 23 p1). It’s a good sign that the Embarq integration is going well for CenturyTel, because that should give investors confidence in the company’s ability to integrate Qwest, said Hudson Square Research analyst Todd Rethemeier. He noted Qwest’s access line loss of 262,000 was lower than the 327,000 a year earlier and CenturyTel’s narowed to 126,000 from 140,000.