February 27, 2008

2 Min Read
Qwest May Cut Sprint, Move Wireless Subs to Verizon

By Tara Seals

Qwest Communications International Inc. is in talks with Verizon Communications Inc. to move its 824,000 wireless subscribers onto the Verizon Wireless network, Verizon confirmed on Wednesday. If the deal goes through, it could leverage other Verizon services as well to shore up its service bundles.

Qwest, the No. 3 phone company in the United States, has an MVNO deal with Sprint Nextel Corp. that is inadequate according to comments from CEO Ed Mueller on Monday, as the model cuts into Qwests profit margins. Apart from making for a more profitable wireless endeavor, Qwest could leverage Verizons superior market share and overall offerings to bolster its appeal, widen its footprint and compensate for the wireline losses it is seeing within its 14-state local territory. Qwest said it has flat or falling earnings in many of its lines of business.

Mueller said Monday during his first call with investors since taking the CEO post six months ago that Qwest has serious holes in its strategy when it comes to wireless and that he aims to fill them. In fact, he said, wireless will be a key part of Qwests future strategy, particularly when it comes to wireless broadband and offering a compelling quad-play to compete with the cablecos that are ferociously competing with the carrier. To that end, he said the company is looking to partner with someone in a way that looks a lot like its arrangement with DirectTV, which he said is an example of a positive relationship.

A deal could also help Qwest offset wireline access line losses with Verizons unlimited wireless plans, wrote Cowen and Co. analyst Tom Watts in an investor note. Near-term financial impact is expected to be minimal for Verizon, while growth potential should be more meaningful.

An agreement with Verizon, which co-owns Verizon Wireless with Vodafone plc, would supplant the Sprint arrangement when that contract expires early in 2009. Analysts say the RBOC could still go with AT&T Inc. or T-Mobile USA, although a concern is the fact that those carriers are GSM-based. Qwests Sprint-based offering is a CDMA service, so moving subscribers to Verizons CDMA network would be a less painful transition for end users, requiring no handset exchanges.

Qwest has been without wireless holdings since 2005, when it sold off its spectrum licenses to Verizon Wireless for $418 million.

As for the loser in the situation, this is yet another blow to the No. 3 cellco, Sprint. Sprints fourth-quarter results are due Thursday. The carrier has seen continued churn and profit loss, coupled with management upheaval and an unfocused strategy.

AT&T Inc. www.att.com
Sprint-Nextel Corp. www.sprint.com
T-Mobile USA www.tmobile.com
Verizon Communications Inc. www.verizon.com
Verizon Wireless www.verizonwireless.com

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