Qwest Communications International Inc. (Q), which provides local phone service in 14 mostly Western states, on Tuesday reported a smaller loss for the third quarter as revenue edged higher with the help of a big government contract while operating costs fell.

Losses fell to $144 million, or 8 cents per share, for the quarter ended Sept. 30 from $569 million, or 31 cents per share, last year. Revenue edged up to $3.5 billion from $3.45 billion.

Separately, Qwest (search) also announced a tentative $400 million settlement of shareholder lawsuits stemming from an accounting scandal that forced the telecommunications company to restate billions of dollars of revenue.The proposed settlement, which is subject to court approval among other conditions, would resolve claims against the company, some former executives and its board of directors.

Qwest shares fell 16 cents, or 3.7 percent, to $4.20 in morning trading on the New York Stock Exchange (search). They have traded in a 52-week range of $3.27 to $4.86.

"Qwest's strategies to pursue growth and to enhance our profitability are working," Chief Executive Richard Notebaert (search) said in a statement.

Qwest said its latest results were weighed down by $26 million in restructuring, realignment and severance charges, which amounted to 1 cent per share. Not counting the charge, Qwest's results met Wall Street's expectations, which called for a loss of 7 cents per share on revenue of $3.45 billion, according to Thomson Financial.

Qwest lost out earlier this year to Verizon Communications Inc. in a battle to acquire MCI Inc. Qwest voiced opposition to that deal, as well as SBC Communications Inc. acquisition of AT&T Corp. Both deals have won U.S. regulatory clearances over the past two weeks.

The third quarter marked Qwest's sixth straight period of stable revenue, aided by revenue from a large government contract of $52 million, it said. The company said revenue trends also improved because of strong sales of "growth products," including high-speed Internet, advanced data products, long-distance and bundles of services.

At the same time, Qwest said operating costs fell 9 percent from the 2004 third quarter, and cost of sales declined $36 million. Qwest credited cost-cutting initiatives at some facilities for some of the decline, partially offset by increased costs from the large government contract and wireless usage-based minutes.