Qwest Invests $15 Million in Rhythms NetConnections

Qwest Communications International Inc. Wednesday made a $15 million investment in Digital Subscriber Line provider Rhythms NetConnections Inc. in a move that will allow Qwest to offer DSL connectivity in 31 major markets.

By the end of this year, Qwest will offer DSL access to businesses in major markets across the country including Austin, Texas; Chicago, Detroit, Los Angeles, New York, Phoenix, Portland, Ore., and San Jose, Calif.

Rhythms NetConnections, which provides high-speed networking solutions, will also provide Qwest space for call processing equipment. Qwest will also become Rhythms’ preferred Web hosting provider.

Joseph Naccio, Qwest’s chairman and chief executive officer, said the company’s investment in Rhythms will give it the additional capacity needed to expand its local connectivity strategy.

“In order for Qwest to drive the creation and adoption of bandwidth-enabled applications and network management services… we must be able to offer customers a last-mile high-speed connectivity solution,” he said.

Qwest’s investment comes on the heels of Microsoft Corp.’s decision to take a $30 million stake in Rhymns in mid-March. That investment marked Microsoft’s first foray into the DSL market, although the company has several high-speed cable ties with Comcast, Road Runner and Qwest Communications.

Separately, Rhythms NetConnections Wednesday floated an initial public offering. The company sold 9.375 million shares at $21 each. Underwriting the offering are Merrill Lynch & Co., Salomon Smith Barney, Hambrecht & Quist and Thomas Weisel Partners LLC.

Just before midday, Rhythms NetConnections (RTHM) shares had soared 42 to 63.