Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Troubled Qwest

When new management took over at Qwest Communications (NYSE: Q  ) back in 2002, the smallest of the Baby Bells phone companies was facing falling revenues, saddled with debt, and suffering big legal problems. Well, as its second-quarter figures show, little has changed. Things still look bad at Qwest.

Qwest's main business, local fixed-line telephone service, is in decay. In the last 12 months, Qwest lost close to a million residential phone lines, a distressing 8.8% fall. A lot of those customers cut the cord entirely, jumping to wireless services. But unlike the bigger Bells -- SBC Communications (NYSE: SBC  ) , Verizon (NYSE: VZ  ) , and BellSouth (NYSE: BLS  ) -- Qwest didn't make up for the slide with gains in wireless. In fact, Qwest's wireless subscriber base shrunk by 14% in the second quarter.

Qwest wasn't able to find many more customers for the other major business: long-haul fiber-optic networks. In that competitive business, which suffers from excess capacity and nasty pricing wars, any victories over AT&T (NYSE: T  ) , Sprint (NYSE: FON  ) , and MCI (Nasdaq: MCIP  ) translated into losses.

Negative and shrinking free cash flow means a higher risk to Qwest's ability to pay off its enormous debt load. At the end of Q2, Qwest had $1.5 billion in cash and, even after big reductions in the past two years, $16.4 billion in long-term debt. Interest on that debt remains the biggest item on Qwest's expense line.

Clearly, lawsuits will continue to keep Qwest occupied. The company has now set aside $500 million to cover settlement costs arising from ongoing investigations by the Securities and Exchange Commission and the Justice Department over alleged accounting shenanigans through 2002.

On the back of the dismal Q2 numbers, Qwest shares sank 20% yesterday to a two-year low of $3.17 and another 6% today to $2.98. Even so, the shares trade on an enterprise value-to-EBITDA multiple of 6. That's higher than the multiples for better-positioned Verizon and SBC Communications. The torturous problems at Qwest will take a long time to solve -- if ever. Don't mistake the price slump as a buying opportunity.

SBC Communications is aMotley Fool Stock Advisorrecommendation. Sign up for six months, risk-free.

Fool contributor Ben McClure hails from the Great White North. He doesn't own any companies mentioned here.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 534463, ~/Articles/ArticleHandler.aspx, 10/21/2016 6:17:06 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

3/31/2011 4:02 PM
Q.DL2 $6.83 Down +0.00 +0.00%
Qwest Communicatio… CAPS Rating: **
T $37.49 Down -1.16 -3.00%
AT and T CAPS Rating: ****
VZ $48.20 Down -0.94 -1.91%
Verizon Communicat… CAPS Rating: ****