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Tuesday, July 18, 2006

Widely Traded 48 Hour Clock: Qwest Gets A Grade of "C"

Stocks: (Q)(VZ)(T)

Prudential today came out with ratings of the old Bell companies. Verizon got knocked on the head with an "underweight". The theory is that because it may face more competition from cable and VoIP that the other telco's, its value should be less.

Qwest managed a "neutral weight". Not much of an endorsement. The company is trading near the high end of its 52-week high/low range of $8.36/$3.67. At $7.64, the stock may be a bit pricey.

Qwest has done some smart things. It has hooked up with DirecTV for video delivery and Sprint for cell service. It 's not as good as having the services within the company, but bundling can help keep customers.

Revenue at Qwest has been fairly flat over the last four quarters at about $3.5 billion. But, operating income has been improving. In the last quarter, it hit $354 million, well above the levels of the three immediatly previous quarters.

Qwest's size is its biggest problem. With annual revenue of under $14 billion, it is dwarfed by AT&T and Verizon (Verizon's annual revenue is about $75 billion and approximately $44 billion). The company does not have the resources to go into fiber to the home TV, wireless, and other initiatives that the larger companies in the industry can afford.

Qwest is still basically a local land line company. With VoIP growing each day, and local cable companies knocking on door with the TV/broadband/phone package, the future for Qwest looks less and less bright.

A "neutral" rating may be generous, unless Qwest gets married to another company.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about.

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