In the rapidly consolidating telecommunications industry, Qwest likely will have to go it alone for the time being after MCI rebuffed its...
DENVER — In the rapidly consolidating telecommunications industry, Qwest likely will have to go it alone for the time being after MCI rebuffed its multibillion-dollar takeover bid.
Although Qwest has a nationwide fiber-optics network and a local footprint across much of the West, including Washington, it is weighed down by about $17 billion in debt, the lack of a wireless division and competition from cable and high-speed data companies.
Qwest will have to “tough it out on its own” after three recent industry mergers, Scott Cleland, chief executive of the independent research firm Precursor Group, said yesterday. “Qwest had few options before and has less now.”
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A Qwest spokesman did not return a telephone message seeking comment.
Verizon likely won MCI’s favor with a bid about $500 million less than what Qwest offered because it is larger and in better financial shape than Qwest.
Launched in 1988 by billionaire investor Philip Anschutz, Qwest entered the local phone business in 2000 with a $38 billion takeover of US West, the main carrier in 14 Western and Midwestern states since the 1984 breakup of AT&T.
Federal regulators began investigating Qwest in 2002 for allegedly inflating revenue through fraudulent transactions. The company later restated financial results for 2001 and 2002 to lower revenue by about $2.5 billion.
After Qwest settled the civil fraud charges for $250 million last fall, many analysts expected it would be acquired instead of pulling out its checkbook to buy.
MCI appealed to Qwest because the two companies together would have given Qwest free cash flow to repair its own balance sheet, Janco Partners research analyst Donna Jaegers said.
“There’s not a lot of other partners in the telecom space out there that have really pristine balance sheets and that would be interested in combining with Qwest,” she said.
At the end of September, Qwest had $17.2 billion in debt compared with $1.81 billion in cash. It lost $1.66 billion during the first nine months of 2004.
The company is scheduled to release fourth-quarter earnings today. Analysts predict a loss of about 13 cents a share.
Jaegers, who does not follow Qwest officially and does not have a rating for it, likens Qwest to a consumer who has a $30,000-a-year job and $50,000 in credit-card debt: It needs a way to dig out.
She expects the company to perform better than expected in the next few quarters with savings from cost-cutting measures kicking in and a rate increase that should boost revenue.
Qwest reported an increase in DSL lines in the first nine months and also is launching voice over Internet protocol, or VoIP, services.
It is possible Qwest will sell some or all of its assets or acquire some that are shed by other companies, such as a land-line business from another telecom firm, analysts said.
Telecommunications consultant Thomas Friedberg of Denver speculated Qwest executives already are looking at alternatives. “I think they will recognize that’s not an answer for them to continue plodding along as they have,” he said.
Qwest stock dropped 17 cents, or 4.1 percent, to $3.98 yesterday.