Frontier's quarterly, yearly earnings to fall short

Blaming the decline on falling long distance prices, the company says its board is meeting to discuss the shortfall and also a takeover offer from Qwest.

Frontier's second-quarter and 1999 earnings won't meet expectations because of lower prices for long distance phone services.

The No. 5 U.S. long distance carrier said it expects to earn 20 to 22 cents a share in the second quarter before one-time charges or gains and about $1 for all of 1999. Frontier was previously expected to earn 28 cents a share for the quarter and $1.19 for the year, the average estimates of analysts polled by First Call.

The company said the shortfall won't affect its agreement to be acquired by Global Crossing for $12.9 billion, or $63 a share, and that its board is still evaluating a competing $13.83 billion, or $68, offer from Qwest.

Frontier blamed the shortfall on falling prices for traditional long distance phone calls and said it's accelerating plans to beef up its more profitable data and Internet businesses.

"Traditional switched long-distance services are fast becoming commoditized in this industry and do not reflect the future of our business," said Frontier president Rolla Huff.

Frontier's board met to discuss the shortfall and Qwest's offer this evening at the company's Rochester, New York, headquarters.

Global Crossing, which is building an undersea fiber-optic telecommunications system, confirmed its plans to proceed with the Frontier purchase.

"To us, the core value of Frontier has always been its high-speed network, wide range of data and Internet services, and extensive sales and support capabilities," Global Crossing chief executive Robert Annunziata said.

Qwest said it also won't change its offer for Frontier and reiterated a request for the companies to enter negotiations. "Time of course is of the essence to us and Frontier shareowners," Qwest said.

Huff said the company is seeing falling prices for both retail services and wholesale services to other phone companies that use its network. The company was also affected by an unidentified customer in the United Kingdom that ran into credit problems.

"There is business that we've just walked away from because it has negative margins," Huff said in an interview.

Still, some analysts were surprised by the warning.

"I'm having a bit of a hard time figuring out how things got so bad so fast," said Anna-Maria Kovacs, an analyst at Janney Montgomery Scott, who rates Frontier "hold."

Qwest, the No. 4 U.S. long-distance phone company, earlier today said it may take its offer directly to Frontier's shareholders if the board refuses to negotiate.

Qwest and Global Crossing want Frontier to bolster their abilities to sell new Internet and data services, and compete with AT&T and MCI WorldCom.

Frontier shares fell 1.5 to 58.31, and Global Crossing fell 1.25 to 44.56. Qwest rose .44 to 34.31. Frontier issued its profit warning after the close of U.S. markets.

Copyright 1999, Bloomberg L.P. All Rights Reserved.

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