Nacchio: Mergers are Doomed
by Jennifer Sullivan
6:50pm 20.Jul.98.PDT
DANA POINT, California -- All of the recent mega
mergers between the old granddad
telecommunications companies -- like MCI and
Worldcom and AT&T and TCI -- are for naught,
according to Joe Nacchio, CEO of Qwest
Communications.
"It will all end up in antitrust cases," Nacchio said
Monday at the Spotlight '98 Conference in Dana
Point, California. "These oligopolies ... getting
together are kidding themselves."
Nacchio said the established companies are
buying each other up to protect themselves from
aggressive upstarts, like Qwest (QWST). The
shopping spree would help the established
companies protect their cash flows by controlling
even bigger chunks of the telecommunications
markets, he proposed.
He said companies like AT&T were hiding behind
a "tech angle" -- citing plans to offer more services
to consumers -- to convince regulators to allow
them to bulk up. He pooh-poohed the AT&T plan
to buy TCI. "In the next 18 months, the deal won't
even get regulatory approval."
Nacchio was addressing fellow executives,
analysts, and journalists at Spotlight, a
conference on new business models on the
Internet.
Nacchio spun his company as the young upstart,
founded in 1988, that will topple the giant phone
companies and realize an entirely new telecom
business model.
Qwest is building a fiber-optic telecommunications
network based on Internet telephony technology,
the same technology that shuffles email around
the Internet. Because the network would
theoretically use resources far more efficiently,
Qwest would be able to offer long-distance voice
calls and data services far cheaper than traditional
rivals. Qwest's acquisition of LCI Communications
last fall made it the fourth-largest long-distance
carrier.
Nacchio said once big bandwidth becomes
available, the traditional way of making money in
telecommunications will be scrapped. "When
voice is merely an application, you'll see pricing
changes," he said. "You'll see the industry
change, you'll see vertically integrated companies
... disintegrating."
Instead of paying for services based on distances,
customers would pay for the amount of bandwidth
they want, between which points, and the quality.
Nacchio said he wasn't sure exactly how
customers would use high-bandwidth networks.
Qwest's plan is to provide the infrastructure for
which designers would innovate services. "We're
counting on entrepreneurs to say, 'How would I
design an application if bandwidth was not a
constraint?'" he said. "We are about to flip the
model. We will be an enabling mechanism."
Separately, Nacchio said Qwest's stock is
"terribly undervalued" relative to the Yahoos of the
investment world. But he predicted continuing
strong interest in Internet stocks, like Qwest.
"The Internet is breaking down the cartel," he said.
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