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Qwest Sees Zero Growth In 2002

Qwest Communications joins fellow incumbent local exchange carriers (ILECs) with a dour fourth quarter 2001 showing Thursday that fails to meet Wall Street expectations.

Earning just $4.8 billion in revenues, $200 million less than investment analysts expected, and $1.7 billion in earnings before interest, taxes, depreciation and amortization (EBITDA), Qwest joins the other Baby Bells in recording less-than-stellar quarterly results.

The company expressed little faith in improving conditions at the company, forecasting zero growth, although cost-cutting expenditures are expected to bring the telco giant cash-flow positive sometime in 2002, officials said.

The Denver-based local telephone giant, which commands much of Rocky Mountain region and surrounding states, has been facing a steady decline in demand for its voice and data services, executives said.

The decline has forced the carrier to announce a workforce reduction of 7,000 employees to 55,000 by mid-2002. To help pay for severance and other asset write-downs, Qwest accountants are taking a $400-$600 million hit in fourth quarter earnings.

Despite some huge contracts that have been good for Qwest's long-term viability, such as a recent $60 million contract with the State of Oregon, its been faced with continued bad luck when it comes to the advanced data services that makes most carriers money.

Internet business has been so bad, in fact, the ILEC essentially wrote off its dial up and digital subscriber line (DSL) business to one of its customers, MSN. In the coming months Qwest.net will shut down its service and migrate interested customers over to MSN's service. Migration steps have been underway for weeks.

While Qwest officials downplayed the announcement as a cost-cutting measure that will result in advertising revenues from MSN, it signals the end of their involvement with small business and residential customer services, a profitable endeavor if managed properly.

Instead, Qwest is hoping to return to some of its core competencies, like providing bandwidth needs (i.e., T-1, OC-3) and telephone services.

Qwest has taken it's reductions a step further than the other three incumbent telephone companies in the U.S., but that may be more due to its location than anything else. While it commands a 14-state footprint that covers most of mid-America, they are in sparsely populated areas like Idaho, Wyoming and the Dakotas.

That stands in stark to Verizon, which controls telecommunications in the New England region, BellSouth, with control over the Southeast portion of the U.S. and SBC, with its hands in the Texas, California and the entire Midwest.

Even those carriers have felt the pinch in their pocketbooks, posting lagging revenue results and reining in broadband deployment in much of its service reach.

SBC, which reported $2.1 billion in revenues in the third quarter, has blamed much of its stalled progress on too-stringent regulations by the Federal Communications Commission and announced a 20 percent reduction in capital spending in 2002.

Verizon also has expressed its desire for limited growth and looks to bolster its network in the coming year, mainly in the New York region, which was severely damaged because of recent events.

Qwest is following in SBC's footsteps, announcing a spending cut of more than $1.3 billion.

Joseph Nacchio, Qwest chairman, said in a press conference Thursday morning the decision is simple when you look at it from an economic standpoint.

"Capital is variable with demand," he said. "And demand is lower, so capital spending is lower."