updated 11/4/2004 6:11:31 PM ET 2004-11-04T23:11:31

Qwest Communications International Inc. reported a third-quarter loss on Thursday, partly due to lower revenues and to putting aside $250 million in litigation reserves after settling civil fraud charges.

The telecommunications company reported a loss of $569 million, or 31 cents a share, versus earnings of $1.8 billion, or $1.05 per share during the same period last year when Qwest benefited from the sale of its QwestDex directory operations.

Special items included charges of $250 million, or 14 cents a share, for higher litigation reserves caused by an October settlement of civil fraud charges with the Securities and Exchange Commission, and $40 million, or 2 cents a share, for several other items including taxes and inventory.

Revenue decreased 3.4 percent from third quarter 2003 to $3.45 billion, the company said.

Qwest lost 4.1 percent of consumer access lines and 4.9 percent of business retail access lines compared with the same period in 2003, but reported a 65 percent year-over-year increase in DSL subscribers.

"We are pleased with the improvements in trends in our third-quarter results," Qwest Chairman and CEO Richard Notebaert said.

Telecommunications analyst Donna Jaeger of Janco Partners said Qwest showed some success in its local service area and long-distance sales. "They're starting to show some progress in stabilizing revenues," she said.

"They're headed in the right direction," she said. "They've got to answer the question to what they're going to do with the out-of-region assets."

Those assets include a national fiber optic network that was launched in the 1990s. Notebaert told analysts that they were still reviewing their options for the network.

Qwest, the primary telephone company in 14 Western and Midwestern states, faces challenges in reducing debt as an increasing number of customers opt for wireless or other services over traditional telephone lines.

The company has worked to cut costs, including eliminating about 4,000 jobs in the third quarter, and is experimenting with new high-tech offerings, such as Voice over Internet Protocol, or VoIP.

"We know for certain that the conventional telecommunications thinking does not work," Notebaert said. "We have to think out of the box."

The SEC settlement ended a two-year investigation of what the agency called "massive financial fraud" for improperly booking $3.8 billion in revenue. Qwest neither admitted nor denied the allegations. A criminal probe is continuing.

Earlier this year, Qwest set aside $500 million in reserve for litigation costs. The SEC is still investigating individuals in the case, and there are pending class-action shareholder lawsuits.

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