Notebaert: Qwest poised for profitable ‘06

Qwest Communications has cleaned up its balance sheet and is poised to be profitable in 2006, Chairman and CEO Richard Notebaert told the Citigroup Entertainment Media & Telecommunications conference.

In a classic case of making lemonade out of lemons, Notebaert also pointed out that Qwest has a unique opportunity for a half-billion dollars in revenue growth simply by meeting industry penetration averages for basic local, long-distance, DSL and bundled DirecTV video service.

“While we don’t like having lagged, it does put us in a unique position for growth,” he said. “We don’t have to reinvent the wheel--just be more aggressive and retail oriented in our selling. These are just fundamental basic opportunities that other people have been able to accomplish in the same competitive environment.”

Qwest has already improved its service penetration in 2005, and is doing a better job of selling bundles and driving up average revenue per user (ARPU), he said. The company has had five straight quarters of improved year-over-year revenue growth and launched a quad-play service bundle at mid-year that is proving popular, he said.

Notebaert painted a much brighter Qwest picture where free cash flow, debt control and customer service perception is concerned.

Qwest’s EBITDA margins are up from mid-20% to 29%, and the company is targeting the industry average at the mid-30s, he said. In 2005, Qwest will come in with $600 million to $800 million in free cash flow--a figure that was negative in 2002. That growth in free cash flow will accelerate in 2006, Notebaert promised.

“In ’06, we will accelerate what we have been doing,” he said. “The last four to five quarters have been flat to slightly up. Debt restructuring will bring in $250 million to $275 million in cash flow, improved operations will generate $300 million on top of the $600 million to $800 million we said we’ll be in the range of in ’05,” he concluded.

The company’s debt has been restructured both to eliminate higher-cost debt and to prevent “bunching” of debt payments that puts a strain on cash flow, he added.

Cost containment and growth in penetration have been achieved even as Qwest posted its highest ever customer service scores with J.D. Power & Associates, the University of Michigan consumer service and other sources, Notebaert said.

While Qwest does face competitive pressure--the company sought federal regulatory relief recently and admitted losing half of its voice market in Omaha, Neb.--Notebaert said the company’s service bundles are price-competitive with the major players and that its quad-play service competes favorably with triple-play offerings from companies such as Comcast and Cox Communications.