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Mergers & acquisitions

The Final Qwest?

10:05 AM -- Qwest Communications International Inc. (NYSE: Q) has been the subject of merger speculation for many years now, dating back to its days as US West, the largest (geographically) and most rural of the original seven Bell regional holding companies created by the breakup of AT&T.

Set against a sometimes turbulent backdrop, the deal announced today with CenturyLink Inc. (NYSE: CTL) seems to be plain common sense.

Consider the roller coaster ride of the Qwest investor (and customer). As an RBOC, US West was known for innovation in data services (anyone remember US West Enterprise Services?), but its struggles with local service quality made the company the target of many a state regulator. US West was the first to attempt video services over copper pipes, with early VDSL implementation, but ultimately abandoned those efforts.

US West then became an unexpected part of the domain of King Joe -- Nacchio, that is, the former AT&T Inc. (NYSE: T) exec who launched national player Qwest Communications before the financial shenanigans that landed him in jail (while his case is being appealed again). (See FCC Clears US West/Qwest Merger.)

Former Ameritech chairman Richard Notebaert took the reins and, other than his protracted efforts to acquire MCI Communications and block Verizon Communications Inc. (NYSE: VZ)'s move in that direction, took a heads-down approach to cleaning up Qwest's balance sheet and improving its customer service.

Current chairman Edward Mueller has continued that trend, adding a focus on upgrading Qwest's local access technology to VDSL2 to deliver much more bandwidth to the customer, but refusing to jump on the video services bandwagon being driven by Verizon and AT&T, seeing IPTV as an immature product.

Qwest's acquisition by CenturyLink may change that. In addition to its DISH Network partnership, CenturyLink has launched IPTV in a limited number of markets and plans expansion.

Other than that distinction, these companies have great similarities, which makes this merger inordinately sensible. Both companies serve largely rural areas but are capable of serving urban markets. Qwest Wholesale can expand its footprint into areas that could well be of interest to its diverse customer base. The larger company gains the economies of scale that will enable it to compete with the likes of AT&T and Verizon in terms of attracting innovation by vendors.

Unlike those two companies, however, CenturyLink hasn't shied away from trying to bring broadband to non-urban markets. The company isn't selling off inconveniently difficult-to-serve areas, as Verizon is doing, or bringing its brand of new service only to its mostly densely populated segments, as AT&T has done with U-Verse.

There could well be further rationalizations. It will be interesting to see how CenturyLink deals with having a national data and voice network in the fold. But for the majority of the former US West local service territory, this could be the final stop on the roller coaster ride.

— Carol Wilson, Chief Editor, Events, Light Reading

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