Why I’m Bullish on Qwest
April 3, 2009
The media is abuzz about Qwest Communications.
The buzz: Qwest would like to sell off its long haul business–analysts say it will fetch $2 billion to $3 billion. They say it’s to retire some forthcoming 2010 and 2011 debt.
Now–I am not surprised, given the vast majority of analysts have never operated a company and enjoy the pleasures of spreadsheet surfing as a form of art–that retiring debt is the conclusion. The short term antics of analysts are still alive and well! And, if I ran Qwest, I would tell the analysts no different. After all, you don’t get rewarded for thinking long term.
May I digress for a moment? A memory just popped into my head… Years ago, an Investment Banker (aka Real Smart Guy on Wall Street) left his lofty perch as a Banker in pursuit of even greater riches and became the CEO of a small CLEC. After all, he reasoned, after years of being a Banker, how hard can it be?
As Paul Harvey would say: “And now…the rest of the story…”
Over dinner one evening, our ex-Banker friend told me that he should have never left Banking, this (being a CEO) is “too much like work, Banking was easy.”
Back to Qwest… I like to think about things and observe. And one thing my years of Telecom experience have taught me about ILECs, is they usually don’t do something on a proactive basis, like divest network assets unless they are forced to by the Government or are in dire financial straights. Qwest is not under Government orders, nor are they in hard financial straights. You have to give the ILEC credit–they are not dumb people. Case in point, Verizon Communications unloading their Maine, Vermont and New Hampshire wire line network assets to Fairpoint Communications recently. It has not been an easy path for Fairpoint. Some analysts in hindsight are now questioning a number of things…except, of course, their past analysis of the deal.
I give Qwest credit, my logic beyond “debt retirement” is as follows:
1. Qwest International was the first to build out an independent nationwide long haul fiber network back in the mid 1990’s. The infrastructure is long in the tooth, the fiber is not “this generation fiber.”
2. Long distance calling as a usage product is marginal at best and is going to succumb to “free VOIP” if you buy our data plan. Texting has already surpassed TDM voice in usage…and twitter is just starting…in Academia, this shift would be called the end of a life cycle.
3. Qwest International IRU’d fiber over the years to other carriers. Built-in options exist for capacity. Long haul wholesale is a tough pony to ride.
4. Qwest is not in the wireless business. Wireless is driving backhaul. There is no distinct competitive advantage for Qwest to become a virtual wireless operator. As IP evolves and the Federal Government gets open network access and devices–not being in the cellular business won’t matter much–local market network presence will.
5. Every day I read about yet another box provider stating 10 gig, 40 gig and 400 gig capabilities for long haul networks. We always must remember the cheapest and easiest network to light have always been the long haul networks. Local networks are far more costly, complex and knowledge intense than long haul.
6. Service and application value-add originates and terminates locally – that is the future. Long haul networks running at 400 gig are pure commodity–cheaper than salt. The telephone has been around for over 100 years…I have yet to witness a call originate or terminate on a long haul network. This is why Google is working real hard inside the Beltway on policy and as a friend of President Obama.
So, as I look at Qwest and their footprint, I believe they want to stay in the game and will focus on services inside and outside their territory. I imagine they see the same data that I see where margins and profits are better for carriers where rational competition exists and less bravado overbuilding has been done. I believe they see a future where margin growth is valued over revenue growth given our financial markets are not likely to return to their old practices of lending any time soon–I am not talking about a near term credit thaw. I believe our financial institutions will be regulated as such, that margin and profit growth will become the key lending criteria–no longer the big revenue “too big to fail” financings of the past.
I also believe Qwest sees the importance of local fiber access and presence–even if you end up as a nationwide wholesaler of local bandwidth.
I believe with cheaper capital forthcoming, and the retiring some debt, Qwest will become a near term consolidator of Telecommunications infrastructure. I see a focus not so much on the top tier markets, but in viewing an opportunity to become a major national player below the top 12 cities in the United States. Today, on a network basis, below the top 12 cities, it is a highly fragmented market with a donut hole between the ILECs and the smaller players.
All due respect to the larger CLECs with a billion or two in revenue, but–in the scheme of things–we are all tiny. I have had countless inquiries from all sorts of Private Equity firms claiming they see a large opportunity in consolidating below the top twelve markets, yet no PE firm has shown the moxy to lead it…yet.
Qwest and the right PE firm – could be an entirely different story. A newly reconstituted Qwest can provide the right platform, existing scale and PE comfort to become a national “Zone 2” carrier and enabler which is missing in America.
I’m more bullish on Qwest than just retiring some debt…we’ll see …
Written by Dave Rusin - Telecom Executive
Posted by wbrache | Filed Under American telecom, Telecom USA, Telecom news, Telecommunications bloggers, Telecommunications companies, Telecommunications industry, Telecommunications news, Trends + telecommunications, Trends in telecommunications
(No Ratings Yet)
Loading ...Comments
2 Responses to “Why I’m Bullish on Qwest”
Got something to say?
Feeds
Dave,
Verizon was not forced to sell any of its rural properties – Hawaii, KY, or New England. It did it purely to get out of rural was the story. To get out from under the responsibility that Qwest, Windstream and Embarq have: how do I leverage my current aged copper plant in rural land to forestall declining revenue? In other words, I can’t or won’t roll out FTTx because there isn’t enough return.
What does Qwest (or US West) do without a national fiber network? It loses all that IP and LD revenue as well as its long-haul wave revenue and probably its CyberCentre money.
$2-3B against a debt of $14B. It would be better off spinning off the LH business like Alltel or Sprint did. IPO it and pay off that debt. Even in this market it would probably work.
[...] to “Why I’m Bullish on Qwest”: Dave, Verizon was not forced to sell any of its rural properties – Hawaii, KY, or New England. It [...]