Qwest Shares Plummet on Drop in Services

Qwest Communications International saw shares fall badly on Tuesday as the company reported a jump in third-quarter net income due to a $2.15 billion tax benefit, but said overall revenue dipped because of a 19 percent drop in traditional wholesale services.

The Denver-based telecommunications company also said a 9.7 percent increase in Internet and video service revenue was offset by an 8 percent drop in traditional long-distance and local telephone services.

"On the wholesale front, we've experienced the impact of industry consolidation along with some one-time items," Chief Executive Officer Ed Mueller told analysts during a conference call. "While further industry consolidation activity is possible, we are focused on profitability replacement with our higher-margin data products."

Qwest's board has authorized spending up to $300 million to expand the company's networks to residential homes but postponed a decision on shareholder returns during a strategic review process. "This is a prudent course to follow," Mueller said.

For the period ended Sept. 30, Qwest reported net income of $2.07 billion, or $1.08 per share, compared with $194 million, or 9 cents per share, in the third quarter of 2006.

The company's tax benefit rose to $2.15 billion compared with $43 million in the previous year's quarter. It also recorded $353 million in litigation charges during the most recent period.

Operating revenue declined to $3.43 billion from $3.49 billion in the year-ago quarter.

Analysts polled by Thomson Financial expected earnings of 15 cents per share on $3.49 billion in revenue for the period.

In the first nine months, Qwest reported net income of $2.6 billion, or $1.31 a share, compared with $399 million, or 20 cents a share, in the first nine months of 2006.

Revenue totaled $10.3 million compared with $10.4 billion in the 2006 nine-month period.