Oct. 30 (Bloomberg) -- Qwest Communications International Inc., the local phone carrier in 14 western U.S. states, reported revenue and profit that missed analysts' estimates and cut its annual forecast as sales to corporations slowed. The shares dropped the most in three years in New York trading.

Revenue fell 1.5 percent to $3.43 billion, trailing the $3.49 billion average estimate of analysts in a Bloomberg survey. Net income surged more than 10-fold to $2.07 billion because of a $2.15 billion tax benefit, the Denver-based company said today in a statement.

Qwest Chief Executive Officer Edward Mueller has struggled to speed up sales of corporate Internet connections and data- hosting as prices for phone service drop. Sales to companies fell nearly 1 percent to $1.02 billion, after Qwest had forecast an increase in the second half of 2007.

``The revenue growth just hasn't materialized,'' said Jonathan Chaplin, an analyst with J.P. Morgan Securities Inc. ``After today, we don't really know where we stand.''

Qwest slumped $1.12, or 14 percent, to $7.06 at 4:04 p.m. in New York Stock Exchange composite trading, the biggest decline since August 2004. The stock has fallen 16 percent in 2007.

Profit, excluding the tax benefit and $353 million in litigation costs, was 14 cents a share, missing the 16-cent analyst projection. Qwest reduced its profit forecast for the year by $150 million to $4.64 billion, excluding interest and other items, on lower business sales.

Internet Investment

Qwest announced plans to invest $300 million next year in faster home Internet connections after subscriber growth slowed. Mueller, who is reviewing Qwest's strategy, refused to predict overall spending and to say whether the company will pay investors a dividend.

Sales in 2007 will fall below last year's revenue of $13.92 billion, Chief Financial Officer John Richardson said on a conference call after today's report. Analysts in the Bloomberg survey projected sales of $13.88 billion, on average.

Mueller, 60, said after joining the company in August that he would examine whether to renew the dividend, which the company discontinued in 2002. The CEO should clarify how he plans to use the cash, Chaplin said.

``It just creates a situation where investors can't value what they're holding,'' said the analyst, who has recommended buying the shares over the past year.

Qwest must determine a business strategy before it can decide how to use its cash, Mueller said in an interview. He said he plans to make those decisions by the end of the year.

`Very Disciplined'

``We will address it,'' he said. ``We are being very disciplined in how we do our strategic review.''

Internet subscriber growth has slowed this year for Qwest and rival Comcast Corp., the cable television company that offers Internet and phone service, because more than half of U.S. homes already have high-speed connections.

Qwest added 111,000 high-speed Internet subscribers, missing Janco Partners Inc. analyst Donna Jaegers's estimate of an increase of 150,000 to 160,000. Last year, it added 175,000 broadband customers in the quarter. Comcast signed up 450,000 Internet customers, missing the 500,000 estimate of analyst Anthony Noto of Goldman Sachs Group Inc.

Qwest ended the quarter with 13 million phone lines, down 7.2 percent from a year ago, as subscribers switched to cable or wireless plans. The number of primary home-phone lines fell 8 percent to 6.9 million.

Mueller's predecessor Richard Notebaert retired in August after rescuing the company from the brink of bankruptcy. Notebaert joined Qwest in 2002 after its debt had swollen to $26 billion under CEO Joseph Nacchio, who was convicted in April of insider trading.

Qwest is the fourth-biggest U.S. phone company behind AT&T Inc., Verizon Communications Inc. and Sprint Nextel Corp.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net.

Last Updated: October 30, 2007 16:18 EDT