Bells Are Ringing

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To deal with the pressure, the company says it will finally increase its investment in the Colorado telephone network by 30 percent this year, to $873 million, and boost construction hours by 30 percent through overtime and outside contracting. The company also plans to hire 100 additional repair technicians and move more engineers out of the central office and into the field.

But the question remains: What happened to the money that the company saved by reducing investment in previous years?

Washington State's Blackmon believes US West diverted the money, which could have been spent expanding the network, into highly publicized high-tech services for the Internet in order to better position itself for a sale or merger. Not coincidentally, Wall Street has become infatuated with companies involved in the Internet, and stock prices have sailed into the stratosphere for many of them.

One of US West's primary focuses has been on its high-speed Digital Subscriber Line (DSL), marketed as MegaBit Services, which allows Internet users almost instantaneous access to the Web, without the delays that constantly annoy anyone surfing the Internet. The company has invested millions in it, and the service is already available to 5.5 million customers; plans are in the works to expand it to millions more, according to US West's annual report.

"Things like DSL create a patina of being a high-tech, forward-looking company," says Blackmon. "That made them look more forward-looking going into the sale." Washington State regulators have been perplexed for years as to why the company was refusing to invest in the telephone network, says Blackmon. He thinks US West made a decision at the highest level that the company must become more high-tech-oriented as it prepared for an eventual sale or merger like the one with Qwest.

"Sol Trujillo's big thing is that they get the company in front in certain areas, like video over telephone wires," says Blackmon. "They were focused on things that look good from the outside, with curb appeal. They didn't spend a lot on getting rid of outdated analog switches. Potential buyers wouldn't notice that."

US West's most recent financial reports back up Blackmon's analysis. The company credited a 9.4 percent jump in second-quarter profits in 1999--to $421 million--to a huge demand for DSL service. US West expects to have more than 100,000 DSL subscribers by the end of the year. The company told Wall Street analysts that it boosted capital spending by 21 percent to $981 million during that time, largely to accelerate its rollout of DSL and other data services.

Qwest officials readily acknowledge that US West's high-tech Internet investments played a key role in bringing the two companies together. "US West has been very aggressive in terms of development of fiber optics, and they're one of the recognized leaders of the [Bell companies] in terms of new technology," says Tyler Gronbach, a spokesman for Qwest. "This merger is not about Qwest getting into local telephone service; it's about Qwest furthering its goal to bring the next generation of Internet communication to customers."

However, consumer advocates say it's Colorado's local telephone users who have been put on hold by US West's foray onto the Internet.

"There's only so many capital dollars available," says the Office of Consumer Counsel's Callaghan, who agrees with Blackmon's analysis. "The competition [for investment dollars] is between basic [regulated phone] service and the unregulated services [like DSL]. Their focus is on the bells and whistles, not basic service."

In speeches to investors and employees, Trujillo has emphasized the importance of the high-tech ventures. In his remarks to shareholders at the company's annual meeting in New York City in May, Trujillo repeatedly talked about the promise of the Internet and US West's effort to become a key player in the fast-changing digital world.

"My vision for US West is that we must be absolutely Internet-focused in terms of everything we do," Trujillo told the crowd. "Ours is a strategy built on innovative products and services integrated in unique ways that make voice, data, Internet communications, wired or wireless services work together."

Trujillo did not make a single reference to the company's telephone-service problems anywhere in the speech. However, he did note that US West posted record profits of $1.5 billion in 1998 on total revenues of $12.4 billion. The company is the 135th largest in the country based on revenues, said Trujillo, but the 53rd largest based on profits.

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Stuart Steers
Contact: Stuart Steers