Qwest Communications floors it
By Peter D. Henig
Red Herring Online
September 15, 1998
Even for a Brooklyn boy, Joe Nacchio, CEO of Qwest Communications (QWST), talks fast. Very fast.
It's probably to save time. Because at Qwest, he says, "we're moving fast. Very fast."
Getting the holes dug
Qwest is building an 18,500 mile, coast-to-coast fiber-optic network that, when completed, will serve 130 cities across the country with a big, beefy broadband pipe. But it's not just talk. As Mr. Nacchio says, "Qwest is about moving images in the 21st century as easily as the telephone companies moved voice in the 20th century."
And Mr. Nacchio should know. Up until he joined Qwest, he was heir apparent at AT&T (T), until Michael Armstrong was brought in, thereby bumping Mr. Nacchio out of the way.
But speaking today at the Nationsbanc Montgomery Securities Annual Investment Conference in San Francisco, Mr. Nacchio looked none the worse for wear.
"We've got 15,500 miles of glass in the ground, 9,000 miles lit, and we're shooting to have all of the trenches dug before winter," said the CEO. "It's now a time-to-market issue, and we've got a significant head start." (Two other companies following Qwest's strategy in building out high-speed Internet protocol (IP) networks are Level 3 Communications (LVLT) and Williams Companies (WMB)
Whole lot of synergies
But from the looks of it, or rather, if you can believe the conference hype, Qwest has more than a head start when it comes to generating some big dollars.
Almost overnight -- and largely because of its $4.4 billion merger with LCI International -- Qwest has become a multibillion-dollar company with Mr. Nacchio predicting 1998 pro forma revenue of approximately $3 billion while generating $400 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).
Moreover, according to a NationsBanc Montgomery Securities report, the LCI merger could "generate approximately $2 billion in synergies through 2001, including revenue synergies of more than $300 million, operating cost synergies of $1.16 billion and cumulative capital synergies of more than $600 million."
That's a whole lot of synergies going on, but ones that are surely needed now that Qwest is in its peak year in terms of capital expenditures, having to invest $1.3 billion to $1.5 billion this year, and another $750 million to $1 billion next year.
But that's not to say business isn't good; in fact, it's downright fantastic right now. Mr. Nacchio reported that Qwest has a $1.2 billion fully funded contract backlog and, even at a build-out cost of approximately $1,000 per fiber mile, the company has been able to sell enough of its "dark" fibers to bring down its net capital investment to $100 per fiber mile.
So while its CEO may talk fast, Qwest appears to be ramping even faster.
With a stock price that just tagged 30 on Tuesday, up 1.18, Montgomery Securities -- which maintains a Buy rating on the stock -- is now calling for a target of 50, with the possibility of it heading even higher.
And judging by the reception Mr. Nacchio received at the conference, the stock may get there fast.. Very fast.
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