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Qwest Faces Hard Times

June 17, 2002
Qwest Communications' new CEO, Richard C. Notebaert, has a tough road ahead. The former Ameritech executive replaces Joseph Nacchio, who leaves Qwest with a junk credit rating. Telecom consumer site editor Rich Sayers says the company's credit status matches "its trashy treatment of consumers."

Qwest gained control of US West, the local telephone company for much of the West, with a $50 billion merger in 2002. At the time, Nacchio said the deal would launch a global powerhouse. Today, Qwest is $26 billion in debt, heavily invested in international fiber optic networks at a time of oversupply, facing a federal investigation into its accounting practices and fighting local charges of poor service.

Sayers, editor of 10-10PhoneRates.com says Notebaert faces four big challenges:

1. Turning around Qwest's consumer image. "Qwest has been sued for slamming in at least 8 states and subjected users to huge rate increases without notice," said Sayers. "I quit listing their 10-10-432 dial around service after Qwest increased rates by as much as 1,100 percent plus added a connect fee and minimum 3-minute billing. There was no value left for the consumer."

2. Handling upcoming market share challenges for local service. "MCI's new Neighborhood Plan has some traction in the market now and presents a viable option for higher volume users where it is offered," said Sayers. It's only a matter of time before barriers to local competition are lowered further in Qwest's 14-state region and competitive offerings pick up speed.

3. Gaining approval to offer long-distance in the 14 states, then designing plans that appeal to consumers. "Last week Qwest bragged about offering a 10-cent rate on all calls if able to offer long-distance to its local customers. However, for many users a 10-cent rate falls far short of competitive offers already available," according to Sayers.

For example, a Qwest reseller named ECG charges less than a nickel a minute for state-to-state calls. ECG beats Qwest's proposed instate rate in a couple of states as well, although a minimum usage of $10 a month is required to avoid a monthly fee. Resellers of other top carriers offer even better deals. An example is Everdial, whose calls are carried on MCI's network. Everdial charges 50 percent less than Qwest's proposed 10 cents on interstate calls and beats that rate instate for nine of Qwest's 14 local states.

4. Convincing investors that Qwest stock is worth buying. Qwest (NYSE: Q) recently traded at more than 90% off its peak reached in mid-2000.

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