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Qwest's Profits Come Up Just Short

First-quarter revenue slips 1.5% to $3.40 billion, which the company attributes to the impact of industry consolidation and long-distance pricing pressure.



missed Wall Street's estimates Monday with its first-quarter results, blaming the miss on savage competition and economic pressures, particularly in Western states most affected by the housing slump.

The Denver phone- and data-services provider said it had a first-quarter profit of $157 million, or 9 cents a share, falling from $240 million, or 12 cents a share, in the year-ago period. Qwest said it began recording its income tax expense at normal effective rates in the first quarter, which resulted in $99 million of income tax expense compared to $2 million in the same quarter a year earlier.

Revenue slipped 1.5% to $3.40 billion from $3.45 billion a year earlier, which Qwest said reflects the impact of industry consolidation and long-distance pricing pressure.

Analysts were looking for earnings of 10 cents a share on revenue of $3.42 billion, according to Thomson Reuters. Qwest was falling 26 cents, or 4.9%, to $5.10.

"Since the beginning of the year, we have demonstrated notable progress on our strategies for success, including announcing a new wireless model and executing on our fiber-to-the-node build-out, which is ahead of plan for the year," said CEO Ed Mueller in a release. "In addition, we continue to effectively compete for customers in a challenging economic climate."

Qwest said that mass markets revenue slipped 0.7% to $1.48 billion in the quarter, as a 20.7% rise in data, Internet and video revenue was offset by declines in both voice and wireless services. Sequential revenue was essentially flat.

Broadband subscribers increased 17.2% in the quarter to 2.7 million. The company said it also added 50,000 net



subscribers for a total of 699,000 video subscribers, an increase of 42%.

Qwest has been hurt as cable giants


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, Cox and

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Time Warner Cable


have aggressively jumped into the phone business as part of their 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.

Qwest's first-quarter results come a day after

it announced a new five-year agreement

to market and sell Verizon Wireless service beginning this summer, supplanting ailing


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as its wireless services vendor. Verizon Wireless is the joint venture between


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In a post-earnings call with

, Mueller said the choice to switch to Verizon Wireless was a necessity as Qwest needed a national retail presence not branded under its own name.

"We wanted a very good retail partner, one that could also provide next-generation data like 4G," he said. "We have access to all the latest and greatest handsets now."

Mueller said even though revenue in the quarter took a hit from the consolidation among telco names,

a potential merger between Sprint


Deutsche Telekom

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shouldn't impair Qwest. "If there were a Sprint consolidation, something like that wouldn't affect us," he said.

When asked about expectations for the company's May 22 shareholder meeting, considering there is a

stockholder proposal for an independent director

, Mueller said he wouldn't comment on any proxy votes ahead of the meeting.