Qwest pulls on its hunting boots

June 10th, 2008 by · 6 Comments

Qwest’s CEO Edward Mueller said on Monday that he expects more consolidation and that he is open to participating in it.  Of course, this begs the question: just what is Qwest’s strategy here?  For years now it has been plain that their current path cannot be sustained.  They still have many options, but once you choose one road others probably are closed off.

  • Seek more metro assets and revenue to make its longhaul network more viable, e.g. buy XO.  This has seemed like a no-brainer for years, Qwest even bid on the Allegiance assets that are now part of XO.  XO’s east coast metro fiber would help their ability to compete on a national scale far more than those of OnFiber have (they bought that a couple years ago).
  • Seek a larger base of similar customers, e.g. buy Embarq.  Seems a bit boring and dead-end-ish, but presumably there is some safety in size and it might be accretive .
  • Seek a more international footprint, e.g. buy Global Crossing.  This could dovetail with the rumor on VoIPWatch because while I doubt Qwest has the firepower to do it alone, someone who does have that firepower might make it happen.  Of course, they might also have to be crazy as a loon, but stranger things have happened.
  • Seek a wireless aspect: look to get bought by someone who has one.  It’s hard to find one that hasn’t already effectively said no already though.
  • Break itself up and sell the pieces, e.g. sell the longhaul network to LVLT (this has long been a dream of LVLT partisans) and break the ILEC portion into pieces for maximum value.

So can they find something to do this time that is accretive to shareholders?  I mean something bigger than OnFiber, which really wasn’t enough to make a dent at all.  If one doesn’t count Icahn as a factor, the obvious first move is to buy XO, but since having Big Carl as a substantial minority shareholder strikes me as something Mueller might see as too much fun, they’d have to find the cash.  If they did, they’d also get NextLink and have the cashflow to use that LMDS spectrum just as the wireless sector starts to have need o it, which would give them more leverage to find a wireless partner of some sort.

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Categories: CLEC · Internet Backbones · Mergers and Acquisitions · Wireless

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6 Comments So Far

  • toddforthree says:

    rob i think you might like this last question asked yesterday at the q meeting. lets just say this guy wasnt happy. ha

    (A): Interesting. That’s truly different. I think we have one final question in the
    back here. We can go a couple of minutes over.
    (Q): Okay. At the end of day, let’s face a major fact. This is about financial engineering, correct,
    when you look at the RLECs and when you look at your business. I guess your stock trades at 4.8
    times EBIT/EBITDA. With the NOLs, it will be down to 4.2 times. And assume that 10% SG&A
    savings benefit by you guys merging with someone else, i.e. an Embarq or a WindStream, you’re
    going to the 3s. You become tremendously accretive. And why don’t you consider that and why
    aren’t we doing that and why are we actually taking the effort to actually sell this business to
    someone that can run it? Is there any benefit to that? Or do we think we can effectively run the
    business, multiple expand the business and make it more attractive for shareholders?
    (A): Well, we won’t comment on the individual M&A transactions. But where it
    is accretive, it is attractive. And there’s a lot of things that go into that, valuations at any point in
    time. But where you can make it accretive for your shareholders, we would always pursue that

  • tech101 says:

    Are XO’s $3.2 billion NOLs in your equation? That’s more than $1 billion saving on tax for Q.

    As you mentioned, XO/NextLink’s largest portfolio of LMDS spectrum in the nation would allow Q to step its feet into the wireless business that Q lacks and has been dreaming of.

  • The_highwyman says:

    the only issue w/LMDS spectrum is that it is now viewed by certain study groups as not viable anymore…I believe it does have a place for certain apps, but it is not near as hot or sexy as it once was in the mid 90’s…that and severe distance limitations of only 1.5 to 2 miles, even w/proper rain fade attenuation and modern day improvements in antenna gain…distnaces of up to 5 miles have been possible on clear & sunny days and no line of sight issues…I worked with a start up telecom down in Durango Colorado back in 97/98 that based their entire network on LMDS and deployed the best of breed gear by Lightpoint. During months of testing we discovered not only serious distance limitations, but that snow, trees and hills hate LMDS…I do not know how valuable that LMDS spectrum really may be now…but I have not kept up w/recent LMDS stuff

  • The_highwyman says:

    sorry Lightpoint should be Newbridge

  • asdf says:

    There was an article back somewhere that listed possible takeover targets for Qwest. They included: Windstream, Embarq, TW Telecom, XO, GX, and I think LVLT. I think they most likely won’t want to buy any company that has a lot of debt, since they’re trying to get rid of debt themselves. Buying XO, and GX would give them the most additional revenue, more fiber, taking on the least debt, and paying the lowest price.

  • tram says:

    Was the deploymet in Durando a point to mulitpoint system and what were you delivering over LMDS.The only vision XO has for LMDS is point to point backhaul for cell phone operators and ip traffic.XO is certainly rich in spectrum .Vendors don’t have any confidence is mass deployment using LMDS for say a migration of wi-fi and therefore are not expending any R&D money to make inexpensice LMDS chipsets.

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