Hi All:
This might be a tad easier:
Small Qwest's Big Quest: Take
On Telecom Leaders
Date: 2/2/99
Author: Reinhardt Krause
What's next for Qwest? One of telecom's busiest
deal-makers has lofty ambitions.
Qwest Communications International Inc. is
building a national phone system using the latest in
fiber-optics and Internet-type electronics.
Aided by its spiraling share price, Qwest put many
building blocks in place through stock acquisitions
last year. More strategic moves are on the way, the
company says.
There will have to be. Qwest's goal is no less than
to compete head-to- head against leaders such as
MCI WorldCom Inc. and AT&T Corp., Chief
Executive Joseph Nacchio says.
''In no way are we slowing down,'' he said. ''You'll
see Qwest much more active in local connectivity,
and we'll continue to move globally.''
Qwest might even make money this year, analysts
say. It's expected to earn 23 cents a share, up from
a loss of 8 cents in '98, says a consensus of
analysts polled by IBES International Inc.
Denver-based Qwest is slated to report year-end
results on Wednesday. It should garner close to $3
billion in sales, up from $2.4 billion, on the heels of
its purchase of long- distance firm LCI International
Inc. for $4.3 billion in stock last year.
In 1998, the company also spent heavily to build
its fiber-optic network. The 18,500-mile system is
expected to be completed in June and reach 125
U.S. cities.
Completion will be a huge milestone for Qwest,
says analyst Peter Kennedy at Morgan Stanley
Dean Witter Inc. in New York.
Qwest will be able to migrate more of its customers
to its own network, boosting the bottom line, he
says. It now pays about $15 million monthly to
lease capacity from other carriers.
Other newcomers also are building advanced
networks. They include IXC Communications Inc.,
Williams Cos. and Level 3 Communications Inc.
Qwest, started by construction services firm
Anschutz Corp., wants to set itself apart.
Where rivals like Williams plan to focus on
providing wholesale services to big carriers, Qwest
is trying to create a wide base of customers that
will gobble up capacity on its fiber-optic network.
Some analysts say Qwest is on the right track.
Qwest vs. MCI WorldCom
''A year or two from now, Qwest may be looking at
MCI WorldCom as its key rival, and vice versa,''
said Bear Stearns analyst Michele Wolf. ''Qwest is
in a transition period between being like IXC and
becoming more like WorldCom.''
Nacchio likes the comparison, given MCI
WorldCom's $137 billion market cap. He says
Qwest and MCI WorldCom will both chase
high-end corporate customers that need private-line
data services. Both are expanding into Europe's
newly deregulated phone market.
In November, Qwest teamed with Dutch carrier
Royal KPN NV. They formed a joint venture to
build a high-speed, fiber-optic network spanning
Europe and connecting to the U.S.
But Jackson, Miss.-based MCI WorldCom has a
head start. It already owns a large Internet service
provider, UUNet Technologies Inc.
Qwest countered in January by buying Icon CMT
Corp., a Weehawken, N.J.-based ISP, for $185
million in stock. A year ago, Qwest snapped up
Amsterdam-based ISP EUnet NV for $154 million
in stock.
''(MCI WorldCom) has very good assets,'' said
Nacchio, a former high-ranking AT&T executive.
''But we have some inherent strengths in the quality
and scaleability of our new network.''
In March, Qwest took a page from WorldCom's
book. Qwest used its high-flying stock to buy a
bigger carrier: LCI, the fourth-biggest long-distance
company behind AT&T, MCI WorldCom and
Sprint Corp.
McLean, Va.-based LCI gave Qwest access to a
large base of residential and small-business
customers and key network gear called switches.
LCI gives Qwest flexibility to use current
technology as well as upcoming Internet-based
switches to complete phone calls.
''(Qwest) is a formidable competitor,'' said Kevin
O'Hara, chief operating officer of Level 3. ''Their
intent, I think, is to migrate from (traditional)
circuit switching to Internet protocol.''
The Deal-Maker
The LCI merger also sets the stage for other
alliances, analysts say. Qwest gained a big sales
force and back-office billing systems, which can
support more mergers and alliances.
''Qwest has to focus not only on technology but on
building their brand and relationship with
customers,'' said industry analyst Jeffrey Kagan in
Atlanta.
On Tuesday, Qwest and ADP Brokerage Services
Group, a unit of Automatic Data Processing Inc.,
are expected to announce a deal for Web-based
brokerage services.
Qwest inked a three-year marketing deal last year
with Internet pioneer Netscape Communications
Corp. of Mountain View, Calif., in which Qwest's
network can give Netscape users Internet and
phone services. In May, Qwest also signed
long-distance marketing pacts with regional Bells
Ameritech Corp. and US West Inc., in which they
could share networks.
Federal regulators in September blocked Qwest's
deals with Ameritech and US West.
The Federal Communications Commission said the
alliances skirted rules created by the 1996
Telecommunications Act. Those rules are intended
to pry open local phone markets dominated by the
Bells.
Qwest is appealing the ruling. Nacchio also plans to
redo the pacts to help gain regulator approval.
The industry buzz surrounding Qwest has attracted
other allies. In December, Microsoft Corp. said it
would invest $200 million in Qwest to forge closer
ties. Qwest will use Microsoft's software when
selling electronic- commerce and Web-hosting
services to businesses.
Analysts like Merrill Lynch & Co.'s Daniel
Reingold expect Qwest to ink more Internet pacts.
Less known is Qwest's strategy in local phone
markets.
To compete with MCI WorldCom and AT&T,
Qwest likely needs a bigger presence in local
markets. It could opt to buy some new upstarts,
called competitive local exchange carriers. MCI
WorldCom and AT&T have snapped up CLECs.
Nacchio says Qwest will be selective.
In January, Qwest said it would invest $15 million
in Covad Communications Group Inc. of Santa
Clara, Calif. Covad sells high-speed data links over
regular phone wiring to businesses.
Qwest also will step up efforts to open up local
phone markets.
Nacchio is wary of AT&T's planned purchase of
cable operator Tele-Communications Inc. The deal,
valued at about $48 billion, is getting a close look
by the FCC.
''The only thing worse than a monopoly is a
duopoly,'' Nacchio said. ''I would hate to see the
cable guys and the (regional Bells) block the rest of
us from open and broadband access to local
markets.''
(C) Copyright 1999 Investors Business Daily, Inc.
Metadata: QWST WCOM T IIXC WMB LVLT FON AUD
NSCP AIT USW MSFT TCOMA I/4891 I/4922 I/7392
I/3576 I/4811 I/3270 I/4899 E/IBD E/SN1 E/TECH
Awaiting earnings report, then will look to re-establish a long position. I do admire this co.
Regards to all,
DAP |
