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

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.”

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