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Fallout for Qwest unclear
Some think Verizon might try to buy to gain size
By Tom McGhee, Staff Writer
Denver Post
Monday, March 6, 2006

AT&T's offer Sunday for BellSouth raised speculation in some quarters that the move might prompt Verizon to make a bid for Qwest at some point in an effort to counter AT&T's enormous size.

But few experts saw merit in such a union.

Qwest spokesman Robert W. Charlton said Sunday he wouldn't speculate on any merger activity involving the Denver-based phone company.

"We continue to watch industry consolidation with interest as we remain focused on customer service and operational excellence to enhance Qwest shareholder value," he said.

Qwest chief executive Richard Notebaert was in New York last week and spoke at the Reuters Global Technology, Media and Telecoms Summit.  Charlton said the visit had nothing to do with New York-based Verizon.

Verizon spokesman Eric Rabe wouldn't comment on any possible Verizon interest in Qwest.

A beefed-up AT&T, which would have a combined market capitalization of more than $150 billion if its bid for BellSouth is approved, isn't likely to cause Verizon to bid for Qwest, said Scott Cleland, chief executive of the Precursor research firm.

He said local phone service isn't that attractive to Verizon, which has a market cap of $93 billion.  AT&T is interested in BellSouth both for its wired-line customer base and because an acquisition would allow it to gain control of Cingular Wireless, the nation's largest cellphone provider, he said.

Last year, Verizon outbid Qwest for long-distance carrier MCI.  The deal would have made Qwest better able to compete for business customers.

While Qwest has an Internet backbone, the company is predominantly a local phone company serving 14 Western states.  Like other traditional phone companies, Qwest has been losing customers as many replace their land lines with wireless and other telephone alternatives.  Qwest doesn't own a wireless network but instead resells Sprint wireless service.

Janco Partners analyst Donna Jaegers said a merger between AT&T and BellSouth would leave Qwest, the runt of the Baby Bell litter, with less opportunity to match the size of its massive rivals. Qwest has a market cap of $12.3 billion.

BellSouth could have been a possible merger partner for Qwest, Jaegers said.

Qwest's best chance for large-scale growth could rest with two local phone companies that don't currently exist.  Sprint Nextel Corp. and Alltel Corp. plan to spin off their local-phone units to investors, allowing the carriers to focus on their wireless operations.

"The next big round of consolidation after this is going to occur because of the Sprint and All tel spinoffs.  I wouldn't be surprised to see those properties do something with Qwest," Cleland said.

The merger would be the latest in a string of deals that have paired up telephone companies created when the government broke up the Bell monopoly in 1984.  If the acquisition of BellSouth by AT&T goes through, it would leave Qwest as the only Ma Bell spinoff unattached to other Bells.

Staff writer Tom McGhee can be reached at 303-820-1671 or tmcghee@denverpost.com.

http://www.denverpost.com/business/ci_3572862