It's easy to say Qwest Communications (Nasdaq: QWST) should give up on US West Inc. (NYSE: USW) and Frontier Corp. (NYSE: FRO).
Qwest stockholders don't like the idea, and not without reason. After all, Qwest management wants to issue millions of shares and take on billions in debt to buy companies with historically slow growth, in perhaps the most difficult of the Baby Bell markets to serve. The move would likely lock 14 states out of Qwest's grasp in the near term, since federal regulators still won't allow Baby Bells to enter the long distance market in their own territories.
That's the ugly side. Now here's a reason to back the deal: without it, Qwest becomes a two-bit telecom player, albeit one with a cool 18,500-mile network.
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As easy as it may be to tell Qwest CEO Joseph P. Nacchio to forget US West, it's even easier to see where the future of communications is going: all-in-one packages. And US West/Frontier lets Qwest do that.
Because US West has been such a financial dog, people overlook the fact that it's actually ahead of its Baby Bell peers when it comes to developing data services and broadband delivery. Complain all you want about the immediately dilutive effects of Qwest's roughly $45 billion offer, but at least try to think long term. It won't kill you.
Qwest has long portrayed its network as a platform for multimedia applications; unfortunately, it hasn't actually had any; US West would change that. This deal isn't about selling long-distance in 14 sparsely populated states, but about US West's kernel of high-end services -- DSL and digital video, for example -- and selling it everywhere else. And much more than Global Crossing, Qwest has the advanced network to spread fancy services quickly.
AT&T, MCI Worldcom, and Sprint -- Qwest's three biggest rivals -- are all pushing hard to offer bundled communications packages, especially to the corporate market that happens to be Qwest's mainstay. If Qwest doesn't respond, not all the fiber-delivery in the world will prevent the company from receding into the morass of small time carriers.
The fact that US West's region happens to be the RBOC ugly mutt market means Qwest merely locks itself out of a region in which it likely wouldn't have gotten much business anyway. On the other hand, now Qwest can go into the lucrative Northeast and the growing West Coast markets with more than just simple long-distance service.
Granted, Frontier's network overlaps with Qwest's in some points. Think of it as an opportunity for cost savings. Qwest could always sell the redundant portions to someone, or even use them to simply beef up its own bandwidth capacity in some areas.
For US West and Frontier shareholders, the choice is easy -- take the best deal and take off. Meaning take Qwest's offer, because at least there's guaranteed money in your pocket. Besides, Qwest is a better-run company than Global Crossing.
(Although I love one of US West's justifications for rejecting Qwest's first bid: "Lack of assurance that US West's strategies will be executed." In other words, US West CEO Sol Trujillo won't be co-CEO with Qwest, the way he would with Global Crossing. Just can't shake the ego out of these things)
Speaking of ego, buying Qwest stock has long meant buying into Nacchio's desire to build a telecom giant, which is why it's so hard to understand the sudden accusations that Nacchio is turning Qwest into his personal plaything. Qwest shareholders have lived with that all along, why are they bothered about it now?
At least Nacchio not only plays for a big win, but also, judging by today's revised offer, plays very seriously. If Qwest's investors didn't want that, they should never have driven the stock up to astronomical heights in the first place. They could have invested in something slow and steady -- like a Baby Bell.
First Call's survey of 21 analysts predicted break-even results for Micron's third quarter, so people aren't expecting much. Which might mean it's a good time to at least take a closer look at this oft-beaten down stock again.
The overall technology market continued its aimless ways. With two hours left in regular trading, the Nasdaq Composite Index was up 2.87 to 2,583.13, the S&P 500 had fallen 5.74 to 1,330.14, and the Dow Jones Industrial Average had slid 65.22 to 10,656.41. 22GO>