Qwest Communications' (Q) former executives are approaching their day in court for charges related to fraudulent financial statements and insider trading violations that punished the stock from its high of $64 in March 2001 to a low of $1.11 in August in 2002.

The embattled Qwest's new "Spirit of Service" mantra is driving the company forward at a time when demand for broadband to support media and information delivery continues to grow. Qwest recently demonstrated its new commitment to customers by refusing to release telephone records to the National Security Agency, pointing out that doing so would violate federal privacy laws.

qwest_060806_1r%20(2).GIF

Qwest has its roots in providing local service to its customers in Western states like Arizona, Colorado, and Wyoming. While local voice and long distance totaled more than $2 billion, or 61% of revenues for the first quarter ending March 31st, Qwest realizes that both wireline services are shrinking as customers continue to turn to wireless and voice over IP solutions like Skype (EBAY) and Vonage (VG). Qwest reported net income of $88 million for the first quarter, up 54% from a year ago. The improvement in earnings was driven by savings in operating and interest expenses as sales remained relatively flat. In order to combat expected wireline losses, Qwest has begun offering bundles of voice, wireless and broadband service to customers.

Competitors like Level 3 (LVLT) have made acquisitions a priority to hedge against the risk of not being prepared to meet future capacity demands in metropolitan areas. In May, Qwest announced the acquisition of the metropolitan Ethernet service supplier OnFiber Communications. Qwest expects the Ethernet market to grow 50% annually, driven by commercial and consumer demand. The deployment of 3G wireless by service providers Verizon (VZ), Cingular and Sprint Nextel (S) has been a key driver of growth. OnFiber has built a highly profitable business that focuses on commercial high-speed data transmission in major U.S. cities, from San Francisco to Boston, and down to the beaches of Miami.

While net income has been negative for the past 2 years, Qwest's focus on broadband technologies broadens its reach outside of its familiar Western states and gives them a new revenue stream that will supplant its fading wireline service model.

qwest_060806_2r%20(2).GIF

Early investors who plunged in while the stock was pegged at $4 have much to celebrate now that the stock has surged above $7. Qwest insiders have begun to get into the spirit, putting their dollars behind the vision by acquiring over 1 million shares since the beginning of the year. In addition, value investing pioneer Bill Miller of Legg Mason's Value Trust Fund lists Qwest Communications as one of its largest holdings along with competitor Sprint Nextel. As the enhanced communication infrastructure build-out continues to gather steam, and as telecom technology continues to evolve, Qwest appears to be moving beyond its litigious history and forward into profitability.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!