Longform

Bells Are Ringing

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The US West chairman also made it clear that the company's high-tech ventures were now driving its business plan. "We have tripled new revenues from new-growth businesses from 1997 to 1998," he boasted. "This incredible new growth is coming from outside our traditional telephone-company business, and it has only just begun."

Trujillo's upbeat, optimistic speech may seem odd to Coloradans who constantly hear about the phone company's service problems. US West was rated dead last for customer satisfaction among regional phone companies last year, according to a survey by J.D. Power and Associates. It tied for last place again this year.

But then, the speech wasn't aimed at average Coloradans who merely pay their phone bills every month; it was delivered in New York, and its intended audience was Wall Street and the investment bankers who can make or break multi-billion-dollar mergers and acquisitions.

In the financial world, US West was seen as a company in desperate need of some sort of wedding. The question was not just who the intended spouse would be, but whether it would be a shotgun wedding or something more friendly. And when it came to a potential dowry, size mattered.

"The general consensus in the industry was that they needed to take on a partner to grow," says Bob Diddlebock, a former Denver Post business reporter who now works as an analyst following telecommunications for Janco Partners Inc., a local investment-banking firm.

Diddlebock says the telecom world is changing so quickly and requires such massive investment in new technology that even a huge company like US West feels like it needs more resources to survive. "No one company has the money and brainpower to go it alone," he says. "In the telecom world, there's strength in numbers."

US West is actually one of the last of the Baby Bells to pair off with another large company. Bell Atlantic and Nynex have merged to create a Colossus in the Northeast, and three others--SBC, Pacific Telesis and Ameritech--are in the midst of joining forces to form a company that will extend from Chicago to Houston to Los Angeles.

In addition, long-distance companies MCI and WorldCom have already joined together to form a huge telecom pipeline company, and AT&T bought out Denver-based Tele-Communications Inc. and announced plans to eventually offer local telephone service over TCI's cable-television lines.

In May, US West had agreed to a $37 billion merger with Global Crossing Ltd., a Bermuda-based company that's raised billions for an ambitious endeavor to lay fiber-optic lines linking several continents. Global Crossing was widely seen by investors as an odd choice for US West, since that company has just 200 employees and no real experience with customer service. "The question was, how did these companies fit together, where was the potential synergy?" says Diddlebock. "Wall Street did not like [the merger], and both company stocks immediately went downhill."

There was widespread speculation on Wall Street that Denver-based Qwest might make a hostile bid to the US West-Global Crossing deal, and that was exactly what happened in June.

Since its birth in 1988 as a subsidiary of Southern Pacific Rail, Qwest has grown rapidly to become the country's fourth-largest long-distance provider. The firm was created by Denver billionaire Philip Anschutz, who bought Southern Pacific in 1988 and was canny enough to realize that the railroad's right-of-way would be an ideal place to lay a national network of fiber-optic cables.

Originally called SP Telecom, the subsidiary was renamed Qwest in 1995 after it bought a Texas company with the same name. (Anschutz sold Southern Pacific in 1996 but kept Qwest.)

As the demand for Internet access began to explode, Qwest found itself in an ideal position to sell space on its cable lines to long-distance companies and soon became a full-fledged long-distance provider. Last year Qwest paid $4.4 billion to buy the long-distance firm LCI International; today Qwest has more than four million customers and posted record revenues of $873 million in the second quarter of this year.

The firm has been popular on Wall Street as well, where it's viewed as a savvy innovator that stands to make huge profits off the rise of the Internet. Anschutz, who controls 40 percent of Qwest's stock, has seen his investment pay off handsomely. Largely because of Qwest, his billion-dollar fortune has grown several times over to an estimated $16.5 billion, and he was recently ranked as the fifth-richest man in the world.

Anschutz played a pivotal role in striking the deal between Qwest and US West. The reclusive mogul--who is so publicity-shy he once arranged meetings with local business editors and asked them not to refer to him as a billionaire in print--contacted Global Crossing chairman Gary Winnick and arranged a deal. If Global Crossing would give up its planned merger with US West, it could have Frontier Corporation, a major long-distance operator that was being pursued by both Qwest and Global Crossing. (Qwest and Global Crossing were already familiar with one another; in April 1998 they agreed to exchange capacity on each other's fiber-optic networks linking Europe and the United States.)

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Stuart Steers
Contact: Stuart Steers