Nacchio piloted Qwest's flight into turbulence
By Joanne Kelley, Rocky Mountain News
Saturday, March 19, 2005

The tough-talking Joe Nacchio, accused by regulators of presiding over a "culture of fear" when he reigned at Qwest, was once so afraid of flying he had to take Valium to get on an airplane.

It was Denver billionaire Phil Anschutz who flew to Nacchio's turf to meet him for the first time and lure him to the Rocky Mountains to take his upstart company public.
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The Brooklyn, N.Y.-born Nacchio eventually logged countless hours shuttling back and forth between Denver and his home in central New Jersey, where he left his family behind so his sons could finish high school.

The payoff was huge.

On Qwest stock options alone, Nacchio raked in about $250 million. He pulled down seven-figure salaries and, even on his way out the door, collected a hefty severance payment of more than $10 million.

But there was plenty of turbulence along the way.

The 55-year-old has gone from Wall Street darling to pariah in the years since he took a fledgling player to the top of the telecom heap. When outsiders began challenging the company's accounting practices, the plain-spoken Nacchio's tongue grew even sharper.

He once held a conference call with Wall Street analysts to chide a major investment firm for questioning the company's financial reports, saying: "Innuendos on our integrity are not going to be tolerated, irregardless of who makes them."

Even after leaving the company in a fire-storm over accounting irregularities, he insisted he did nothing wrong.

"Joe was an 'in-your-face' type of guy," said Tom Friedberg, an independent telecom consultant in Denver. "I think he reveled in being defiant."

Nacchio had spent 26 years rising through the ranks at AT&T.  He was a top executive there when Robert Allen retired as head of the telecom giant.  But Nacchio was passed over for the CEO post.

When Anschutz came calling, a driven Nacchio was ready for a change.

Anschutz had started Qwest by making a huge investment to lay fiber optic cables along railroad tracks.  But the media-shy investor needed someone who could sell his company's vision to the rest of the world.

Nacchio was well-known on Wall Street, where former superstar analyst Jack Grubman had identified him as the man for the job.

But when Nacchio arrived in Denver to take over as Qwest CEO, many locals couldn't even pronounce the company's name much less the name of its new leader.

As the company's market value ballooned after the initial public offering of stock, so did Nacchio's fame and his fans.

As a newcomer to the city, he learned his way around the streets on his early morning jogs through downtown, where he lived in a hotel during the work week.

In his early years at Qwest, Nacchio told the Rocky Mountain News he aimed to create a culture "where people have a lot of fun and break a lot of rules."

Still, his idea of casual business attire was removing the jacket of his Italian-made suit.

It wouldn't be long before the once obscure Qwest would make a play for U S West, the stodgy old phone company in its own backyard.

Nacchio had already begun telling investors Qwest was becoming a growth-oriented telecommunications company. It was about that time that it began a practice of failing to disclose how much of its revenue was coming from one-time deals.

At times, he appeared to focus on revenue growth at the expense of almost everything else.

"He basically was running a . . . restaurant that lost a dollar on every meal and hoped to make it up on volume," said Reed Hundt, former chairman of the Federal Communications Commission.  "It's just not a very good business model for the long term."

The timing for such a strategy proved costly.

Nacchio took over the company when the stock market was on the upswing.

It was an era when companies saw their stock prices soar even when all they had to show for themselves was the potential for future growth.  Most of those companies watched their shares tumble when the market began its downward spiral.

The Securities and Exchange Commission charged this week that Nacchio directed a scheme to prop up Qwest's stock price so a planned merger with U S West could be completed.

With the U S West merger in 2000, Nacchio inherited a Baby Bell that had long ago turned down a chance to become a national player in the wireless market, a decision some saw as a colossal blunder.

His shake-up of the staid old phone company was long overdue.  Under his leadership, Qwest made badly needed improvements to U S West's network, a move that allowed the company to move into the long distance market.

Stirring up the old culture may be one of his greatest legacies.

"Love him or hate him, U S West wasn't working," said Friedberg, the telecom consultant who briefly worked at the Baby Bell before it merged with Qwest.  "Maybe you needed to impose a culture of fear to eviscerate . . . a culture of sloth.  Nevertheless, there's nothing that could justify a culture of fraud."

kelleyj@RockyMountainNews.com or 303-892-5068