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Qwest's Net Declines but Beats Estimates

Shares of the company were off on the disappointing guidance for the remainder of the year.



topped Wall Street's estimates Wednesday even as second-quarter results declined from a year ago, but shares traded lower following the company's disappointing outlook for the second half of 2008.

The Denver phone and data services provider said it had a first-quarter profit of $188 million, or 11 cents a share, falling from $246 million, or 13 cents a share, in the year-ago period. The year-over-year decline was largely the result of the reversal of the valuation allowance against deferred tax assets in 2007 leading to a higher income tax expense.

Revenue slipped 2% to $3.4 billion from a year earlier, which Qwest said reflects an 8.2% decline in total access lines due to increased competition, wireless substitution and deteriorating economic trends. The company said that the revenue impact from access line losses was partially offset by an increase in the average revenue per subscriber.

Analysts were looking for earnings of 10 cents a share on revenue of $3.39 billion, according to Thomson Reuters.

Looking ahead, Qwest expects total revenue to decline as much as 2.5% for the full year as the company's mass markets business will continue to be pressured. On average, analysts expect full-year revenue to decline 1.7% in 2008 to $13.54 billion, according to Thomson Reuters.

As it replaces

Sprint Nextel

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as its wireless services vendor and migrates to Verizon Wireless, the joint venture between


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, Qwest said wireless revenue is expected to begin to decline at a rapid pace in the second half. "Full year wireless revenue could be down 20%," the company said in a statement.

Qwest shares were off 10 cents, or 2.8%, to $3.49. The stock is down roughly 50% in 2008.

"Under more challenging conditions in some of our markets, operating results were mixed," said CEO Ed Mueller in a release. "As we head into the second half of the year, our focus continues on delivering an exceptional customer experience, providing differentiated service offerings, retaining disciplined cost management and generating cash flows to support growth initiatives and provide tangible returns for our shareholders."

Qwest said that mass markets revenue slipped 3% to $1.5 billion in the second quarter, as a 17% rise in data, Internet and video revenue was offset by declines in both voice and wireless services. Sequential revenue was slightly higher, though.

Broadband subscribers increased by 31,000 in the quarter, with 19,000 of those subscribers having purchased services on Qwest's high-speed fiber optic connection. Still, the 31,000 additions were fewer than what analysts were looking for.

"Obviously, it's a little less than what we would've expected," Mueller told

in a post-earnings call. "But we were happy with the 31,000 adds and the 19,000 taking the fiber-to-the-node connections. That's encouraging to us because that's a nice validation of our plans."

Qwest has been hurt as cable giants


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, Cox and

Time Warner Cable


have aggressively jumped into the phone business as part of their triple-play service bundles.

Competition has gotten even hotter as satellite names

Dish Network

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and DirecTV have aimed high-definition video programming offers at the growing numbers of big-screen TV owners.