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Qwest shares rise with company's optimism

The company tells investors that it is comfortable with the second-quarter earnings and revenue forecasts it set previously, sending shares higher.

    Qwest Communications International told investors Tuesday that it is comfortable with the second-quarter earnings and revenue forecasts it set previously, sending shares higher.

    The telecommunications company says it expects revenue to increase between 12 percent and 13 percent from the preceding quarter's revenue of $1.28 billion.

    Qwest shares rose $1.45, or 5 percent, to $31.27 by market close.

    "We have not seen demand go off the table," Qwest CEO Joseph Nacchio said in a conference call. "We are seeing a slowing in demand, not a cliff function."

    Nacchio said that data reflecting business activity through May seems to indicate soft demand, which is not a new development, and that the company does not expect the climate to worsen.

    The company called the conference call in response to what Nacchio called misleading media reports about how overcapacity has caused telecom carriers to lower prices thus pinching revenue.

    Nacchio blamed the reports as a factor that had caused Qwest's stock to drop by about 18 percent over the past two weeks.

    He added that Qwest's network operates in around the mid-80 percent range of current capacity, arguing that the company makes efficient use of the cables it has already activated. Qwest also owns many inactive fiber-optic cables for future use.

    "Nobody believes there's enough of a market anymore to consume all this fiber that's been laid," Deutsche Bank analyst Gary Jacobi said, adding that telecom start-ups as well as incumbents installed a significant amount of optical fiber that some believe outpaces the demand.

    Nacchio maintained in the conference call that the company has the flexibility to exploit various business segments, depending on the demand and "pivot" of its focus to hot areas.

    "The folks who are completely dependent on wholesale long distance have no place to go if there's tougher competition," he said.

    For the full year, Denver-based Qwest expects EBITDA (earnings before interest, taxes, depreciation and amortization) between $8.5 billion and $8.7 billion, compared with $7.4 billion last year.

    Qwest also expects revenue between $21.3 billion and $21.7 billion for the current year, compared with last year's $19 billion.

    Even though Qwest maintains its faith in future projections, some analysts say that current trends in the industry make it tough going for all carriers involved. Faster telecom equipment that sends data more efficiently over optical networks has become commonplace.

    "Pricing will go down every year, that is natural and to be expected," said Cary Robinson, an analyst at investment bank U.S. Bancorp Piper Jaffray. "The reason for that is that equipment is getting more productive every year."

    Both Robinson and Jacobi agree that the company gets its revenue from diversified sources, which is a strength. However, Qwest is still sailing on rough seas that are tossing even the most seaworthy ships, which might make some investors concerned.

    "Qwest is still a part of a market that's undergoing huge pricing pressure, and people want to wait and see how (it) works itself out of this mess," Jacobi said.

    Qwest reaffirmed guidance in a June 5 filing with the Securities and Exchange Commission. Last February, Qwest also told investors that it was on track to meet full-year 2001 guidance that it set during its year-end earnings call in January.

    The company said that demand from Internet and data services helped carry it to a solid year.