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To: maceng2 who wrote (150663)	2/11/2002 7:18:06 PM
From: maceng2	Read Replies (1) \| Respond to of 436258

SEC widens net for telecoms accounting probe By Richard Waters in New York and Robert Budden in London Published: February 11 2002 14:23 \| Last Updated: February 11 2002 22:05 news.ft.com The Securities and Exchange Commission is digging into business practices among recently formed telecommunications companies, amid broader concerns on Wall Street and in the City of London that sham transactions between rival carriers were used to inflate revenues. The Securities and Exchange Commission investigation is likely to focus attention on the use of similar dealings in Europe, where a number of companies, including Cable & Wireless, rely heavily on sales to each other but where accounting rules are looser. The US regulator's widening interest emerged on Monday as Qwest Communications, one of the leading newer telecoms companies, said it had received an SEC subpoena. The agency had asked for documents relating to Qwest's dealings with Global Crossing, which filed for bankruptcy protection last month, as part of its investigation of that company, Qwest said. Global Crossing and Qwest are among a handful of new global carriers that emerged in the mid-1990s. Some industry executives and analysts warned that some of them had engaged in so-called "hollow swaps", trading blocks of capacity on each others' networks with each other to generate artificial revenues. "We're going to find instances of companies that kidded themselves, and kidded investors, with hollow swaps," said Jim Crowe, chief executive of Level 3 Communications, another relatively new carrier. The irregularities at Enron had raised doubts about the business practices of entire industries, he added. Enron and Tyco International, the US conglomerate whose accounting practices have come under intense questioning, both had their own telecoms subsidiaries and were actively involved in buying and selling network capacity. News that the SEC had sought information from Qwest raised the prospect of a wider review of business and accounting practices in the telecoms industry. Last year Cable & Wireless was forced to reduce its income by $303m (£215m), or 12 per cent, when translating its UK accounts to tougher US standards. The group, which has extensive sharing arrangements with carriers all over the world, usually treats the proceeds of long-term capacity sales as turnover in the first year rather than operating leases as required in the US. Cable & Wireless defended the practice and is not thought to be the subject of any current investigation. Wholesale capacity deals became a common feature of the telecoms industry in the late 1990s as new telecoms companies tried to fill the gaps in their own networks by buying capacity from each other. Known as IRUs, these deals accounted for a large slice of the revenues of several of the new companies when they were under great pressure to begin generating revenues from their networks. Dan Cohrs, Global Crossing's chief financial officer, insisted last week that all of his company's capacity sales were done on genuine arms-length terms and did not involve "hollow" swaps.