Qwest Swaps At Heart of SEC Probe

As much as $1.4 billion in Qwest Communications fiber sales
are under the Securities & Exchange Commission (SEC) microscope as part of
an accounting probe begun in
February.

According to a report in The Wall Street Journal, Qwest’s outside lawyer,
Jonathan Schiller, called the accounting practices “reasonable” and hoped
the SEC saw it that way, too.

Federal officials first targeted the incumbent local exchange carrier
(ILEC) back in February, when the agency was looking into questionable
accounting practices conducted by Qwest peer Global Crossing.

WorldCom was also implicated in the same probe, which
prompted that company’s descent into a possible bankruptcy. Reports
Wednesday indicate the carrier bloated it’s pre-earnings before interest,
taxes, depreciation and amortization (EBITDA) by almost $4 billion. It’s
also reported the carrier will lay off 17,000 of its workers at week’s end.

Qwest’s auditors, Arthur Andersen, were included in the
probe.

One of the main issues of the SEC probe is
the telecom carriers’ reporting of indefeasible right of use (IRU)
deals. Also called “swapping,” Qwest would purchase a certain amount of
Global Crossing bandwidth over a 20-year span while Global Crossing would
purchase a similar amount of bandwidth from Qwest. In the accounting
books, the swaps were considered revenue and beefed up the profit margin.

Qwest officials were unavailable for comment at press time.