A day after quitting the bidding for MCI in frustration, Qwest signaled it may pursue other deals to contend with the merger-driven consolidation...
DENVER — A day after quitting the bidding for MCI in frustration, Qwest signaled it may pursue other deals to contend with the merger-driven consolidation of power in the telephone industry.
Chief Executive Richard Notebaert, speaking after Qwest reported a first-quarter profit on a one-time gain, said yesterday the industry will look for ways to create “a meaningful third leg” to compete with the two giants being formed by the mergers of AT&T and SBC and MCI and Verizon.
“There are a number of opportunities in our sector, a number of companies, a number of businesses,” Notebaert said in a conference call after yesterday’s report.
Analysts suggested Qwest might target companies that sell services to businesses or possibly assets that Verizon and SBC could be forced to divest to lessen government worries the mergers will hurt competition.
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Verizon “outbid” Qwest for MCI on Monday with an $8.54 billion deal that was 13 percent below the $9.85 billion offered by Qwest. It was the fourth time MCI’s board rejected a higher bid from Qwest.
“We never felt like we were negotiating with MCI,” Notebaert said. “Everything we did was unsolicited. At every turn it was, in my opinion, my personal opinion, unsolicited and not warmly received.”
Notebaert’s comments came as Qwest reported that it swung to a first-quarter profit of $57 million, or 3 cents a share. In the same period last year, Qwest lost $310 million, or 17 cents a share.
Qwest, which provides local phone service in 14 mostly Western states, attributed the profitable turn to the sale of its wireless assets to Verizon, which boosted its bottom line by 14 cents a share. Qwest now sells cellular service by using Sprint’s network.
First-quarter revenue edged lower to $3.45 billion compared with $3.48 billion a year earlier as competitive pressures were partially offset by gains in long-distance and DSL Internet lines.
The results were slightly weaker than expected. Analysts surveyed by Thomson Financial had forecast a loss of 10 cents a share, excluding the wireless gain, on sales of $3.45 billion in the latest quarter.
Notebaert didn’t directly answer a question on the possibility of taking its losing bid directly to MCI shareholders for a proxy vote.
Instead, he referred to Monday’s statement announcing Qwest’s withdrawal from the three-month bidding war for MCI, which said the company decided it was not in the best interests of shareholders, customers or employees to pursue a process that appeared skewed against Qwest.
Janco Partners analyst Donna Jaegers said Qwest might turn its attention to telecommunications companies such as Time Warner Telecom and XO Communications, which could boost Qwest’s sales to business customers. Jaegers owns stock in Time Warner Telecom.
Regulatory Source Associates analyst Anna Maria Kovacs expected Qwest to demand that SBC and Verizon sell some assets to win regulatory approval for their mergers and then cheaply snap up some of the properties to feed more traffic onto Qwest’s long-distance network.
“While that would not accomplish everything Qwest hoped to do, it could get it part of the way,” Kovacs wrote in a research note.
Jaegers also pointed to other opportunities, with Verizon looking to raise cash by selling rural phone lines and Sprint spinning off its local phone business as part of its merger with Nextel Communications.
Qwest and BellSouth are the two remaining independent phone companies after the 1984 breakup of the national Bell monopoly into AT&T and seven Baby Bells.
“The problem is, there are no suitors right now” for Qwest, Jaegers said. “The only eligible suitor is BellSouth, and they haven’t made any acquisitions. I don’t think they’re really interested in acquiring a whole new region.”
Qwest shares slipped 1 cent to $3.46 yesterday. Its shares have traded in a range of $2.56 to $4.86 in the past 52 weeks.