Doug on IP Comm – An independent voice on VoIP, telecom, and IP Communication

Qwest: It’s the landlines, silly…

Posted on: June 7, 2009

You almost get the impression that Qwest has a death wish.  It wants to sell off a business it is making money with — its long-haul network — while continuing to hold onto all of its (steadily declining) landline business.  What is wrong with this picture?

Since everyone knows Qwest is a wounded duck with its heavy debt load and that there aren’t that many quality buyers for long-haul these days , bidders are offering as little as under $1 billion — Wayyyy lower than the $3 billion Qwest sought for the network.

Qwest is managing to generate profits by cost cutting, so what’s the rush to sell? As Cartman would say “This. Does Not. Make Sense.”

The company needs to borrow a page from Verizon and start selling off some of its landline assets to other carriers, shedding some of its declining parts of its business. To be fair, the financial instrument that Qwest really wants — cold hard cash — may not be as readily available to potential buyers, so some creative deal-making might be necessary.

For example, Qwest could engineer a three-way deal to shed some of its rural territories with Verizon — someone who has cash — and a smaller carrier, such as Frontier, WindStream, or CenturyLink (formerly CenturyTel).  This complicated trade would include something less valuable (rural area landlines/territories), more valuable (a territory Verizon really would like to have, say Colorado or Washington), and cash provided by Verizon.

When the smoke cleared, the rural carrier would have more rural lines (check), Qwest would have cash (check), and Verizon would add on a new major city or two to its portfolio (check).

Would Verizon be party to such a transaction? Certainly it has both cash and cash flow to invest. It isn’t shy about buying to expand market share (Alltel) and it has shed its unattractive wireline holdings to other buyers.

One might argue that simply purchasing Qwest outright would be the best move, but I think its unlikely because of its big debt load and the regulatory headaches a full blown purchase would entail.  A smaller deal would allow Qwest to pay down its debt and Verizon to expand with a minimum of regulatory headaches.


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