Bells Are Ringing

Page 5 of 5

In a July 14 dinner at the Palace Arms restaurant in the Brown Palace Hotel, Anschutz, Trujillo, and Qwest chairman and CEO Joseph Nacchio hashed out the final arrangement. They agreed that Trujillo would become president of the new company's local phone and wireless business and would be a "co-chairman" of Qwest along with Anschutz and Nacchio. Many people doubt this cooperative leadership will last long, and the betting is that Trujillo may be out the door after the merger is finalized next year.

After the announcement, Nacchio told the media that US West's venture into high-speed Internet access was one of the things that made the company attractive to Qwest. In fact, just last week, Qwest announced plans to launch its own high-speed Internet service in thirty major markets by year's end. They include not only cities where US West already offers DSL, but New York, Los Angeles and Chicago as well. By merging with Qwest, US West may be poised to jump into the telecom major leagues, with the likes of AT&T and MCI/WorldCom.

"To compete in the Internet marketplace, you need three things: a state of the art network, a host of services that customers need and want, and the ability to deliver that to customers' homes," says Qwest's Gronbach. "If you put those three things together, it's an extraordinary opportunity to create a growth company well into the next millennium."

The phone company's investment in the Internet and other cutting-edge technology has paid off big-time, even if its local customers have had to suffer through years of poor service to make it all possible. (The 1998 rollout of the DSL Internet service also took a big toll on US West employees, who were upset at what they saw as a premature launch of the service, with customers berating them over glitches in the program, according to a source who worked closely with the company.)

Nacchio showed a prickly side after the Economist ran an article comparing him to a character in a Martin Scorsese film. "A short, plumpish, Brooklyn-born Italian-American, Mr. Nacchio has all the swagger and verbal braggadocio of Joe Pesci's mobster in the film 'Goodfellas,'" wrote the magazine in June.

Nacchio let the media know that he stands 5 feet 11 inches and weighs 193 pounds, and he sent a letter to the magazine stating, "If you ask anyone who has ever walked alongside me, they would tell you I don't swagger. And to correct one of your implications, the overwhelming majority of Italian-Americans are not mobsters."

Now that Nacchio is about to head up Colorado's telephone monopoly, he may have to learn to be less sensitive. He already seems to have been coached in "targeted communications" by US West's public-relations staff.

Before the merger deal, Nacchio and other Qwest executives were scornful of US West's service record. But now that the deal has been finalized, Nacchio is singing a different tune. "I feel pretty confident that Sol [Trujillo] has made the capital investments necessary to keep up with demand," Nacchio told the Denver Post, adding that the company had been unfairly criticized for its service record.

Even though the final merger is still months away, Qwest executives are already busy making plans to offer high-speed Internet access and data transmission in major markets all over the country.

The question now is whether Qwest will take local phone service seriously.
Gronbach insists the merged company won't neglect local telephone service. "We're talking about reducing the dividend to shareholders and reinvesting that money into the phone network," he says. "Post-merger, we intend to focus on that."

But the temptation to use the local phone monopoly as a cash cow for high-tech empire-building may be hard to resist, especially since there's already a precedent.

"US West didn't weed the garden they'd already planted; they were spending their time planting new gardens," says Diddlebock. "Their emphasis has to be to continue to deliver plain old telephone service."

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Stuart Steers
Contact: Stuart Steers