U S WEST COMMUNICATIONS GROUP 1996 THIRD QUARTER EARNINGS
PAGE
U S WEST Communications, Inc.
1801 California Street
Denver, Colorado 80202
[U S WEST Communications logo and registered trademark]
News Release
Release Date: October 23, 1996
Contact: Dave Banks (303) 804-6752
U S WEST COMMUNICATIONS RECORDS ANOTHER QUARTER OF STRONG
GROWTH IN CORE OPERATIONS;
ACCESS LINES AND VOLUMES AT RECORD LEVELS
ENGLEWOOD, Colo. -- U S WEST Communications Group (NYSE:USW) today announced
record quarterly revenues and continued record access line growth -- among
the best in the industry -- as well as strong growth rates in new products and
local services.
These results, tempered by higher -- but moderating -- operating expenses, led
to normalized quarterly net income of $ 282 million, up 2.2 percent over the
same period in 1995. Further adjusting for certain one-time expenses
associated with the company's Omaha video operations, net income would have
grown 6.2 percent.
Third quarter operating highlights include:
- - Earnings per share (EPS) were unchanged from last year at $.59 on a
normalized basis. Further adjusting for the one-time operating costs
associated with the Omaha video operations, EPS would have been $.61, a 3.4
percent increase.
- - Access line growth, among the strongest in the nation, continues to
accelerate in U S WEST Communications 14-state region, increasing 5.1 percent
(excluding the sale of selected rural telephone exchanges) over the past 12
months. This includes 4.0 percent growth in residential lines, growth in
business lines of 7.9 percent, and a growth rate of 31.7 percent in
residential additional lines.
- - A 5.3 percent increase in operating revenues to $2.52 billion from $2.39
billion in the third quarter, 1995. This quarter's revenue performance was
driven by continued strong local service revenue growth of 9.3 percent. It
was also bolstered by strong growth in high-capacity services provided to our
large business customers, one of the most competitive segments of the
industry.
- - Strong revenue growth in new products, such as Caller ID, Voice
Messaging, and data networking services, up nearly 50 percent from the same
period in 1995. Within this category, revenues from CLASS services (which
include Caller ID) were up approximately 90 percent. !NTERPRISE [registered
trademark], the data networking services division of U S WEST Communications,
reported a revenue increase of more than 100 percent compared to the same
period a year ago.
- - Continued strong penetration of custom calling features such as Call
Waiting, Call Forwarding, and 3-way Calling, driven by innovative marketing of
tailored product bundles.
- - The company intensified its efforts to control costs which led to a
reduction of approximately 1,000 employee positions during the quarter, 500 of
which will leave the company's payroll during the fourth quarter. This
contributed to a productivity increase of 4.6 percent as measured by employees
per 10,000 access lines. That figure now stands at 31.2 versus 32.7 last
year.
Operating expenses were up over the same period in 1995 by 5.1 percent at
$1.94 billion, an improvement over the 1996 second quarter increase of 8.0
percent. Expense increases were driven by:
- - Increased volume due to unprecedented access-line growth -- resulting
from the strong regional economy of the west -- and continuing
service-improvement initiatives. The company had a net gain of 197,000 access
lines in the third quarter, a 25 percent increase compared with third quarter,
1995. A majority of this growth occurred outside the company's five major
metro areas, and more than half of the residential gain was on primary --
versus additional -- lines. While initial costs for provisioning this type of
growth are higher than if a greater percentage were on second lines or in
metro areas, primary line growth spread more evenly across the 14-state
territory is great for the future of the business.
- - Increased costs associated with retail sales and marketing programs,
which are helping drive unprecedented revenue growth and positioning U S WEST
Communications as competitors enter new markets.
"I'm pleased with U S WEST Communications Group's improving service quality
and strong revenue growth," said Richard McCormick, chairman and chief
executive officer of U S WEST, Inc. "Those are critical elements in being fit
for an increasingly competitive marketplace."
Sol Trujillo, president and chief executive officer of U S WEST Communications
Group, said U S WEST Communications' third quarter performance shows the
company's commitment to customers is stronger than ever.
"We have kept our promises to our customers by improving service," Trujillo
said. "That has been our number one priority. At the same time, we're doing
a great job stimulating growth in revenues and new products. That shows our
aggressive marketing efforts are paying off."
"Our challenge now is to flow more of the dollars from these successes in the
core business to the bottom line and generate cash for continued investment in
the business," Trujillo added. "We've begun to see the results of our
initiatives to improve our cost structure, and I'm confident that we'll
continue to improve in the coming quarters. This will translate to improved
shareowner value."
THIRD QUARTER OPERATING HIGHLIGHTS
Operating highlights for the quarter include:
- - On September 5, U S WEST Communications Group joined many of its
industry counterparts in appealing and asking for a stay of selected portions
of the FCC's August 8 interconnection order. Last week, the Federal 8th
Circuit Court stayed essentially the same parts of the order U S WEST had
requested, pending the outcome of appeals, which are expected sometime in
early 1997.
- - Marked improvement in many service quality measures. For instance,
orders "held" more than 30 days for primary service at the end of September,
1996 were 2,033, less than half of the 4,144 at the end of September, 1995 and
were only 37 percent of the 5,439 at the end of September, 1994. As well, 90
percent of the company's customers now reach a customer service representative
within three rings, compared to only about 70 percent in 1994. The company
achieved this performance despite net new access line gains 43 percent higher
than in 1995. Further, order activity is typically highest during the third
quarter. This usually causes an upward spike in held orders at this time of
year. No such spike occurred in 1996. (An order is "held" when the company
cannot deliver service immediately upon receipt of that order.)
- - Continued to drive increased residential penetration levels of
value-added services: Call Waiting, 39.8 %; Caller ID, 20.1 %; Voice
Messaging, 15.6 %.
- - Continued aggressive deployment of U S WEST Network 21. This
state-of-the-art, fiber-optic, bi-directional SONET ring architecture offers
unprecedented survivability, reliability and flexibility for high-capacity
services. These state-of-the-art rings dwarf in size what alternative access
providers have put in place. Customers in Denver, Phoenix and Seattle are
currently receiving the benefits of this enhanced self-healing network, and
construction is currently underway in other key cities.
- - !NTERPRISE continued to enhance its Frame Relay network, and by
year-end, expects to have 38,000 Frame Relay ports in service. That division
also began implementing FT-1 Frame Relay Service in preparation for entering
the interLATA market. This offering will allow !NTERPRISE to package local
and long distance data services for lower-cost, one-stop shopping. During the
third quarter, !NTERPRISE also successfully introduced Audio Conferencing Dial
Out Services, and began a controlled introduction of its new Managed Data
Services, a suite of services that helps customers build and manage data
internetworks.
U S WEST Communications Group provides telecommunications and high-speed data
services to more than 25 million customers in 14 western and midwestern
states. The company is one of two major groups that make up U S WEST. U S WEST
is in the connections business, helping customers share information,
entertainment and communications services in local markets worldwide. U S
WEST's other major group, U S WEST Media Group (NYSE:UMG), is involved in
domestic and international cable and wireless networks, directory publishing
and interactive multimedia services.
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[Safe Harbor statement: Some of the information presented in or in
connection with this announcement constitutes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors that could cause actual results to differ from
expectations include: (i) different than anticipated competition from new
entrants into the local exchange and intralata toll markets, (ii) changes in
demand for the Company's products and services, including optional custom
calling features, (iii) different than anticipated employee levels, capital
expenditures, and operating expenses as a result of unusually rapid, in-region
growth, (iv) the gain or loss of significant customers, and (v) regulatory
changes affecting the telecommunications industry, including changes that
could have an impact on the competitive environment in the local exchange
market.]
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Note: This release and the attached tables are available on the internet by
accessing U S WEST's internet site: www.uswest.com.