Rumored Qwest sell-off could hit Networx biz
Qwest Communications International Inc.’s long-haul network may be on the auction block, according to a Wall Street Journal report
Sale of the long-distance network, which carries calls and Internet traffic for other carriers, could raise between $2 billion and $3 billion dollars for heavily in debt carrier, the report speculated.
But there’s a good chance it may remain mere speculation, said telecom analyst Warren Suss, president of Suss Consulting Inc. “I think there may be less here than meets the eye,” he said.
“I was just talking with some Qwest folks, and I think this story may turn out to be not as dramatic as it first appears,” Suss said. “This deal may not go forward any more than others have.”
What it will do, he said, is “create a degree of uncertainty in the marketplace. But I’m convinced that for the federal business at least, we’ll see no substantive impact.”
High on that list of federal business is the company’s Networx Universal and Networx Enterprise business. Although companywide, Qwest’s 2008 revenue was down by 2.2 percent, its business and government revenue was up by 54 percent in 2008.
“Networx is an extremely valuable contract, and whatever happens, I think Qwest will maintain that business,” Suss said.
“In the past couple of years, Qwest has achieved an extraordinary set of victories in the government marketplace. They’ve been winning substantial contracts. They’ve done an impressive job at making a place for themselves at the table. They’re playing with the big boys.”
Much of that success he lays to Diana Gowen, senior vice president and head of Qwest Government Services Inc. “She’s a remarkable woman,” Suss said.
But the company is carrying heavy debt — about $13.7 billion in consolidated debt, with $5.1 billion coming due over the next three years. “Due to recent turmoil in the credit markets and the continued decline in the economy,” Qwest warned in its annual report for 2008, “we may not be able to refinance maturing debt at terms that are as favorable as those from which we previously benefited, at terms that are acceptable to us or at all.”
Additionally, because credit crunch also could affect customers and their ability to pay Qwest for existing services or to buy new services, “our high debt levels pose risks to our viability,” the annual report said.
Finding a buyer could be problematic, the Wall Street Journal said. But, it speculated, fellow Networx Universal carriers Verizon Communications Inc. and AT&T Inc. “might be attracted by the savings they would get from moving Qwest's corporate and government clients onto their own networks and shutting down Qwest's network.”
The past year was a rocky one for Qwest in other ways. Early in the year, the company’s “chief operating decision maker began to manage our business using different information than he was using previously,” the company said. In response, Qwest reorganized its business segments into business (including government), wholesale and mass markets.
In April 2008, Qwest began the switch of its wireless offering from its virtual operator relationship with Sprint to that of Verizon Wireless, with the transition set to complete this year.
Like other businesses, including Networx carriers, Qwest cut jobs in 2008, 3,900 over the year. And its overall numbers belie a downward trend, with profit down by 50 percent in the fourth quarter of 2008.
Reached for comment, a Qwest spokesman would say only that “Qwest does not comment on rumors or speculation.”
Sami Lais is a special contributor to Washington Technology.