Embarq’s video strategy pays off in Q2

In spite of lost revenue from a continued customer landline exodus and a quarter without marketing its wireless operation, Embarq still posted a higher second-quarter profit today due largely to its video strategy. According to CEO Tom Gerke, Embarq’s decision to deemphasize wireless and increase emphasis on video resulted in 22,000 video additions, the highest level the telco has recorded since the second quarter of 2006.

“Our results this quarter, and frankly over the last two years, reflect our ongoing emphasis on operational excellence,” Gerke said on the telco’s second-quarter earnings call today, adding that the company took strategic steps to get to this point. First, was the announcement last month that starting in the fourth quarter of this year, Nokia Siemens Networks will take over ownership of its voice network operations center (NOC), and the second was closing three Embarq call centers and distributing those employees to the remaining call enters, he said. In addition, the company, which relies on satellite for its video service, has been offering consumers a free DISH Network trial during the summer months to drive triple-play penetration.

The nation's fourth-largest traditional telephone company reported an increase in profit to $206 million, up from $176 million in the same quarter in 2007. While Q2 revenue decreased 3.5% in Q2 to $1.55 billion as customer wireline erosion continued, Embarq posted an operating income of $428 million, a 7% year-over-year increase, as well as average revenue per household increase of 4.8% over the prior year’s time. Gerke said that cost-cutting measures, as well as a macroeconomic environment that led to slowdown in new home construction, caused Q2 profit to rise 17%.

Gerke, officially appointed CEO at Embarq in March after serving as interim CEO following Dan Hesse’s departure to take over at Sprint, said that the highlights of Q2 were similar to Q1 in many ways, with both positives and negatives coming from the economic front. He attributed the revenue decline in part to the fact that the carrier is no longer offering its wireless service. Embarq abandoned its reseller agreement with Sprint in mid-May of this year. While existing customers can keep the carrier’s plan until at least 2009, the telco has yet to partner with another carrier for wireless.