Market tough on local telcos
Qwest, Level 3 declines steeper than
By Jeff Smith
Rocky Mountain News
Thursday, October 9, 2008
The market has battered local telco stocks in recent weeks, with
Broomfield-based Level 3 Communications dipping below $2 a share
and Denver-based Qwest hovering just above that mark.
"In this market, there's no place to hide," said Donna Jaegers,
a telecommunications analyst with D.A. Davidson & Co. in Denver.
The declines reflect the general market, but are steeper than
Qwest shares closed at $2.43 on Wednesday, down 64 percent since
January and 32 percent since the Lehman Brothers collapse four
Level 3 shares have plummeted nearly 50 percent to $1.79 since
"You have to worry about everybody," Jaegers said, adding that
Level 3 and Qwest carry large amounts of debt, and are in a
capital-intensive industry affected by bad economic times.
Level 3 is highly leveraged with $6.8 billion in debt, and only
about $700 million in cash. The communications carrier has a
$360 million cash payment due next September and $900 million of
high-interest debt due in 2010.
Level 3 spokesman Jeff Battcher said the company has good
customers, remains upbeat, and doesn't anticipate a problem in
making the cash payment.
"We still feel very good about our position," Battcher said.
"We've got plenty of cash on hand and we expect to be cash-flow
positive (though not by much) the remainder of the year."
Jaegers said Level 3 hasn't been as aggressive chasing contracts
that require capital investments but noted the company has
always been able to raise money in a pinch.
"(CEO) Jim Crowe has good connections, be it Warren Buffett (or
others)," she said. "So I think they'll have availability of
funds. It's just a question of what sort of rate they're going
to have to pay."
Buffett and two other investors infused $500 million into Level
3 in 2002.
Qwest has estimated it would generate around $1.5 billion of
cash flow this year, giving it some flexibility to handle the
"We're comfortable with our cash flow position," said Qwest
spokeswoman Diane Reberger, reiterating CEO Ed Mueller's recent
comments that the telco may pay off debt instead of refinancing
at unattractive rates.
Qwest has $390 million of debt still due this year and $800
million next year.
Jaegers said Qwest probably has enough cash to continue to pay a
stockholder dividend for at least a year.
Qwest's challenge is the economy. In good times, Qwest probably
could count on customer inertia.
But consumers now are "going to look at every little budget
item," Jaegers said, likely accelerating the loss of land-line
customers to wireless and cable competitors.
smithje@RockyMountainNews.com or 303-954-5155