Qwest Chairman Discounts Talk of Bankruptcy

The head of Qwest Communications sounded a confident note Monday, discounting talk of bankruptcy as he discussed efforts to cut costs and increase revenue.

"In the 90 days I've been here, that word has not come up in my presence other than from outside the company," chairman and CEO Richard Notebaert said during a telecommunications conference held by Morgan Stanley.

Notebaert said Qwest's recent $7.1 billion sale of its yellow pages business, its renegotiation of $3.4 billion in bank loans and securing of $750 million in cash were important early steps on a long, difficult road to recovery for a company saddled with $26 billion in debt.

"We have now fixed the solvency issue I think beyond anybody's expectations," he said.

Other work in the coming months will include eliminating about $1 billion in costs by selling off or restructuring about 10 other Qwest businesses. Among them are companies that design Web pages and sell computer storage space for Internet sites.

The restructuring effort should begin to improve Qwest's cash flow by December, Notebaert said.

Notebaert didn't mention reports that Qwest is trying to reach a settlement with the Securities and Exchange Commission that could end an investigation into how Qwest accounted for about $1.1 billion in revenue over several years under former CEO Joseph Nacchio.

Analyst Susan Kalla of Friedman, Billings, Ramsey said it makes sense for Qwest to focus for now on its core business, the low-risk but low-growth local telephone service.

It will be difficult, Kalla said, but Qwest can avoid bankruptcy.

"But not without some bloodletting and clamping down on capital expenditures," she said. "Local [phone] companies are a big cash spigot, so it's important to not have a drain that sucks down all of the cash."

She said Qwest ultimately has three options to increase profitability: cut jobs, cut capital expenses or cut money-losing businesses.

"The trick is to work on all three of them without denting the revenue stream," Kalla said.

Qwest also expects to hear this week from the Federal Communications Commission whether it can begin offering long-distance service in Colorado, Nebraska, North Dakota, Iowa and Idaho. The FCC is scheduled to decide in October on Qwest's applications for Utah, Wyoming, Montana and Washington.

Under the terms of its 2000 acquisition of U S West, Qwest had to stop providing long-distance service in U S West's 14-state territory until sufficient competition for local phone service existed.

Analysts estimate that if Qwest is allowed to sell long-distance in all 14 states, the company's annual revenue could rise $1 billion to $3 billion. But opponents of the plan, including rivals AT&T and Touch America, say the company's accounting problems should prompt regulators to reject the bids.

After a dip into negative territory Monday morning, Qwest shares were trading up 19 cents, or 6 percent, at $3.19 in afternoon trading on the New York Stock Exchange.

Copyright © 2002 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.

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