Qwest's Nacchio Says Sale of Directory Unit On Track, Questions S&P Downgrade

In issuing its downgrade late Wednesday, S&P expressed doubt over when Qwest could sell its QwestDex directory arm, cash from which would help offset Qwest's heavy debt load. Nacchio told investors in a conference call that the pool of bidders for QwestDex, which executives expect will fetch $8 billion to $10 billion, has been narrowed to six parties and the company hopes to settle on a buyer next month. Nacchio criticized S&P's decision, which he said was not based on new information S&P had on Qwest.

"We should be measured by what we achieve, not by what people speculate," Nacchio says.

S&P cited a number of other factors in issuing the downgrade, including the weak economy, shareholder lawsuits and a federal investigation into accounting practices that it said could hurt the company's ability to "re-establish management credibility."

Nacchio says the S&P downgrade will not affect Qwest operations or the sale of QwestDex. The downgrade could nevertheless mean higher interest payments for Qwest.

"We're in a super-conservative environment, and people have to perform their own judgments," Nacchio says. "That doesn't necessarily make those judgments correct. I always think my view is a little better, given that we're actually running the business."

He also repeated that applications for re-entry into long-distance markets in its 14-state region would be filed beginning in early June. Delays in Qwest's re-entry into the long-distance market in those states was partly responsible for a $1 billion reduction in the company's forecast revenue growth for 2002. Last month Qwest said revenues this year would range from $18 billion to $18.4 billion, down from a previous estimate of $19.4 billion.

Qwest shares fell 24 cents, to $4.79, in morning trading Thursday on the New York Stock Exchange.

In another bit of bad news Thursday, Dutch data services provider KPNQwest announced it is seeking protection from creditors under Dutch laws, and its supervisory board resigned. Qwest owned about 214 million KPNQwest shares.

Nacchio says the KPNQwest problems should not cause interruptions to customers. Qwest will take steps to minimize the risk to customers.

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