Copyright 2002 Knight Ridder/Tribune Business News
Copyright 2002 Saint Paul Pioneer Press
Saint Paul Pioneer Press…06/27/2002
Qwest Communications International Inc. shares fell $2.40 — 57 percent — to close at $1.79 Wednesday as the company was hit with a staggering one-two punch.
The Wall Street Journal reported that the Securities and Exchange Commission is taking a tough stance as it investigates the company's accounting practices. And WorldCom revealed what could be one of the largest accounting frauds ever, saying it had improperly booked $3.8 billion in expenses.
That fed doubts that investors have about Qwest and other telecom service providers. Qwest's stock has now fallen 94 percent this year.
Qwest CEO Richard Notebaert, who replaced Joseph Nacchio last week, tried to distance Qwest from WorldCom's woes and contested the Journal's report.
"What has happened at WorldCom is unfortunate," Notebaert said in a press release. "Qwest is a different company and I wouldn't be here if I didn't believe that."
He said there's nothing new about the SEC's investigation of Qwest's accounting practices. The SEC declined to comment.
Denver-based Qwest services about two thirds of the 3.2 million local phone lines running to Minnesota homes and businesses. Desperate to boost its revenue, it also is seeking regulators' permission to offer long-distance service in Minnesota and 13 other states formerly served by US West.
Qwest has reported eight straight quarterly losses and is trying to sell assets to pay down $26 billion in junk-rated debt and avoid a loan default. Qwest's troubles with the SEC involve how it accounted for as much as $1.4 billion in sales of fiber-optic capacity and whether it was proper for the company to recognize the revenue immediately.
Qwest officials have been trying to convince the SEC that the company used proper accounting in recording the sales, which included "swaps" of capacity.
The sum in question amounts to roughly 4 percent of the company's combined revenue for the two years. But a finding that Qwest improperly booked the sales could be a serious blow to a company struggling to regain credibility with investors.
Despite Qwest's woes, regulators and analysts say customers shouldn't fear they'll lose phone service.
"No matter what happens, the network keeps running," says Atlanta-based telecom analyst Jeffrey Kagan.
Bloomberg and Dow Jones contributed to this report.