turning up the heat on Qwest
By Jeff Smith
Rocky Mountain News
Tuesday, March 7, 2006
Qwest Communications will be under pressure soon to boost
its size to more effectively compete in a consolidated
telecommunications industry, experts said Monday. "I don't
think their prospects are very bright without more scale,"
said Ray Gifford, the former chairman of the Colorado Public
Utilities Commission and president of The Progress & Freedom
Foundation, a Washington think tank.
Gifford and others don't discount the possibility that
Verizon Communications could go after Qwest as a defensive
maneuver following the announcement that AT&T and BellSouth
"I think that's the most likely play" if Qwest were to be
acquired, said Charlotte Yates, chief executive officer of
Telwares, a telecommunications-services company. "But I
think (Verizon) might let it languish a bit."
Qwest, without its own wireless operation, doesn't hold the
same attraction as a company such as BellSouth.
AT&T has also been mentioned as a possible buyer of Qwest.
"That would give them a true coast-to-coast operation,"
Yates said. But AT&T obviously has BellSouth to digest
In the meantime, experts say Qwest has to be prepared to go
"It's not clear that Qwest is a near-term candidate to be
bought by anyone," said Jerry Paul, managing partner of QCM
Absolute Return Fund in Greenwood Village. "I still think
debt reduction needs to be a priority."
Some analysts said the nearly $15 billion debt load,
combined with Qwest's recent surging stock, also makes the
company too expensive to be acquired right now.
Gifford questions that argument, noting the debt already
should be factored into Qwest's stock price, or market
But Gifford did say he believes Qwest needs to strike a
balance between improving its financial structure - so the
telco is even more attractive to a potential merger partner
- and investing enough in its network "to meet the
competitive onslaught from cable. They really do need to
have the capital to invest or they'll die a slow death."
Gifford sees the current wave of Bell mergers as mostly
defensive moves against cable companies, with the next
consolidation wave likely to involve content and application
Communications transport through fiber-optic pipes has
essentially turned into a commodity business, he said.
"Unless (the Bells) own their own content, they're not going
to get that much of the consumers' dollars," Gifford said.
"The consumer will pay for sports, not for a pipe."
Last week, Qwest Chief Executive Dick Notebaert said the
Denver telco would consider buying a company outside the
telecommunications field. But since then, Qwest officials
have said that Notebaert was just answering a hypothetical
If Qwest did merge with a content company, Notebaert would
be ahead of his time, Gifford said. "And Qwest is small
enough that (such a deal) probably wouldn't create a
groundswell of opposition."