NEW YORK, June 8 (Reuters) - Qwest Communications International Inc said on Monday it pulled the sale of its long-distance phone network after failing to attract a sufficient bid, sending its shares down almost six percent .
Qwest said the long-distance network asset holds far more value to its shareholders and is more strategically important to the company.
Its shares closed down 24 cents at $3.93 after the news but had risen from $3.42 before reports of its efforts to sell the unit first emerged on April 1.
'I think some of the faster money investors were looking for the sale as a catalyst. Those investors are selling today,' said Piper Jaffray analyst Christopher Larsen.
Without the prospect of a sale Larsen said that investors will now focus on whether Qwest will be able to cut costs fast enough to offset a declining number of phone lines as consumers disconnect their home phones in the weak economy.
'It becomes a plain old story about quarterly results now,' he said. 'They're going to focus on cutting costs to their their cost structure in line with declining revenue.'
Qwest had hoped for bids of over $2 billion for the long-distance unit but Reuters reported last month that bids due last week were expected to be lower than the asking price, according to people familiar with the bids.
These people said companies including Level 3 Communications Inc, and tw telecom inc were expected to bid for the assets, potentially in partnership with private equity investors.
Larger phone companies including Verizon Communications Inc and AT&T Inc have also looked at the network but would be interested only if they could get it cheap.
LOOKING TO CUT DEBT
The sale comes as Qwest has been struggling to pare down its debt ever since the technology bubble burst earlier in the decade. Its chief financial officer said earlier this year that the company has $560 million in debt maturing in 2009 and another roughly $2.2 billion due in 2010.
Its vastly rural territory is seen as a disadvantage to building more advanced infrastructure for Internet services, and it has been considered one of the weakest of the former Bell operating companies.
Unlike its bigger rivals like AT&T, it does not own a mobile phone network to compensate for the decline in its landline business, making it particularly vulnerable as customers disconnect home phones in favor of cable rivals or wireless services.
Its long distance network serves as a wholesale business, carrying long-distance voice and Internet traffic for other phone carriers.
Qwest also reaffirmed its 2009 outlook, expecting adjusted free cash flow to be $1.4 billion to $1.5 billion and earnings before interest, taxes, depreciation, and amortization of $4.2 billion to $4.4 billion inclusive of pension expenses.
Also on Monday, Qwest prevailed in an appeal of a lawsuit it brought against the Arizona Corporate Commission, which Qwest contended had illegally set prices in its interconnection agreement with DIECA Communications' Covad Communications.
The Ninth U.S. Circuit Court of Appeals ruled that states cannot set rates for some unbundled services that former monopoly carriers like Qwest are required to provide for smaller competitors under the Telecommunications Act of 1996.
Provisions of the act require the former monopoly carriers to enter into interconnection agreements that provide competitors with access to some telecommunications components on an unbundled basis and on terms favorable to the competitors, the court said.
In 2005, the FCC cut down the list of services that had to be offered on a cost basis, allowing the former monopolies to charge competitive rates for the others, the court said.
Qwest had no comment on the ruling, which upheld a trial court grant of summary judgment for Qwest.
Commission Chairwoman Kris Mayes called the ruling 'bad for consumers' and said it 'could put a lot of pressure on the competitors to Qwest.'
The opinion in Qwest Corp vs. Arizona Corporation Commission, No. 07-17079, is 'part of the ongoing battle between states and the Feds as to who's going to push the incumbent phone companies more,' said Stifel Nicolaus analyst Rebecca Arbogast.
Qwest shares closed down 24 cents or 5.76 percent at $3.93 on New York Stock Exchange.
(Reporting by Yinka Adegoke, Ritsuko Ando and Sinead Carew,
editing by Dave Zimmerman, Derek Caney and Bernard Orr)
((e-mail:yinka.adegoke@thomsonreuters.com Reuters Messaging:
Yinka.adegoke.reuters.com@reuters.net; +1 646 223 6081)) Keywords: QWEST/ (Click on http://blogs.reuters.com/category/themes/mediafile/ to see Reuters MediaFile blog) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Qwest said the long-distance network asset holds far more value to its shareholders and is more strategically important to the company.
Its shares closed down 24 cents at $3.93 after the news but had risen from $3.42 before reports of its efforts to sell the unit first emerged on April 1.
'I think some of the faster money investors were looking for the sale as a catalyst. Those investors are selling today,' said Piper Jaffray analyst Christopher Larsen.
Without the prospect of a sale Larsen said that investors will now focus on whether Qwest will be able to cut costs fast enough to offset a declining number of phone lines as consumers disconnect their home phones in the weak economy.
'It becomes a plain old story about quarterly results now,' he said. 'They're going to focus on cutting costs to their their cost structure in line with declining revenue.'
Qwest had hoped for bids of over $2 billion for the long-distance unit but Reuters reported last month that bids due last week were expected to be lower than the asking price, according to people familiar with the bids.
These people said companies including Level 3 Communications Inc, and tw telecom inc were expected to bid for the assets, potentially in partnership with private equity investors.
Larger phone companies including Verizon Communications Inc and AT&T Inc have also looked at the network but would be interested only if they could get it cheap.
LOOKING TO CUT DEBT
The sale comes as Qwest has been struggling to pare down its debt ever since the technology bubble burst earlier in the decade. Its chief financial officer said earlier this year that the company has $560 million in debt maturing in 2009 and another roughly $2.2 billion due in 2010.
Its vastly rural territory is seen as a disadvantage to building more advanced infrastructure for Internet services, and it has been considered one of the weakest of the former Bell operating companies.
Unlike its bigger rivals like AT&T, it does not own a mobile phone network to compensate for the decline in its landline business, making it particularly vulnerable as customers disconnect home phones in favor of cable rivals or wireless services.
Its long distance network serves as a wholesale business, carrying long-distance voice and Internet traffic for other phone carriers.
Qwest also reaffirmed its 2009 outlook, expecting adjusted free cash flow to be $1.4 billion to $1.5 billion and earnings before interest, taxes, depreciation, and amortization of $4.2 billion to $4.4 billion inclusive of pension expenses.
Also on Monday, Qwest prevailed in an appeal of a lawsuit it brought against the Arizona Corporate Commission, which Qwest contended had illegally set prices in its interconnection agreement with DIECA Communications' Covad Communications.
The Ninth U.S. Circuit Court of Appeals ruled that states cannot set rates for some unbundled services that former monopoly carriers like Qwest are required to provide for smaller competitors under the Telecommunications Act of 1996.
Provisions of the act require the former monopoly carriers to enter into interconnection agreements that provide competitors with access to some telecommunications components on an unbundled basis and on terms favorable to the competitors, the court said.
In 2005, the FCC cut down the list of services that had to be offered on a cost basis, allowing the former monopolies to charge competitive rates for the others, the court said.
Qwest had no comment on the ruling, which upheld a trial court grant of summary judgment for Qwest.
Commission Chairwoman Kris Mayes called the ruling 'bad for consumers' and said it 'could put a lot of pressure on the competitors to Qwest.'
The opinion in Qwest Corp vs. Arizona Corporation Commission, No. 07-17079, is 'part of the ongoing battle between states and the Feds as to who's going to push the incumbent phone companies more,' said Stifel Nicolaus analyst Rebecca Arbogast.
Qwest shares closed down 24 cents or 5.76 percent at $3.93 on New York Stock Exchange.
(Reporting by Yinka Adegoke, Ritsuko Ando and Sinead Carew,
editing by Dave Zimmerman, Derek Caney and Bernard Orr)
((e-mail:yinka.adegoke@thomsonreuters.com Reuters Messaging:
Yinka.adegoke.reuters.com@reuters.net; +1 646 223 6081)) Keywords: QWEST/ (Click on http://blogs.reuters.com/category/themes/mediafile/ to see Reuters MediaFile blog) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.