Qwest net 3rd-quarter loss widened to $214 million from $142 million loss year earlier as revenue fell 13.2% to $3.8 billion. Company attributed drop to competitive pressures in local and long distance services, continued economic factors and reductions in data and IP services due to its efforts to eliminate what it said were less-profitable businesses. Losses appeared to cross all of Qwest’s segments, with business services revenue down 5.8%, consumer services 9.2%, wholesale services 20% excluding $133 million in optical capacity asset revenue that was subject to restatement. On brighter side, Qwest CEO Richard Notebaert said company “took significant steps to strengthen the company’s balance sheet and address liquidity concerns” in 3rd quarter. Qwest CFO Oren Shaffer said senior management was “creating an efficient and disciplined company” while “we continue to de- emphasize low-margin businesses and drive costs out of our core operations.”
CLEC industry has stabilized and “is about to turn the corner,” ALTS Pres. John Windhausen said at news briefing on progress report his group released Thurs. Report said: “Industry experts are lagging behind the real developments in the marketplace. Indeed, several signs point to the likelihood of a CLEC revival in 2003.” However, BellSouth spokesman said news that reasonable number of CLECs were reaching state of financial equilibrium served “to restate what all 9 regulatory agencies in BellSouth’s region have confirmed -- BellSouth’s network is open to competition.”
Saying it lacked oversight, General Accounting Office (GAO) dismissed protests filed by Sprint and Global Crossing over hotly disputed, $450 million defense network contract awarded to WorldCom. Defense Information Systems Agency (DISA) awarded IP network contract to WorldCom before carrier filed for bankruptcy. Sprint and Global Crossing protested after WorldCom disclosed in June it had overstated earnings by $3.8 billion in 2001 and 2002. Carriers argued that DISA’s contract decision was based on faulty financial information from WorldCom, which meant Defense Research & Engineering Network (DREN) contract award should be void.
In 17 states, phone call to “211” can help troubled persons in need of social assistance find shortcut through bewildering maze of public- and private-sector health and human service agencies to reach ones that can offer assistance. Many other states are considering establishing 211 referral service. But valuable as that service has proved to be in places where it’s available, economic woes afflicting states, municipalities, businesses and charities may affect pace at which it spreads, observers said.
Experts differed on whether WorldCom would gain unfair advantage if it emerged from bankruptcy as debt-free, fully intact company. In panel sponsored by New Millennium Research Council in Washington Fri., RHK senior analyst Shing Yin argued that reemerged WorldCom, even if free of debt, would remain “inefficient competitor” with EBITDA earnings half that of competitors AT&T or Sprint. Even without interest payments, cash flow would improve to only “slightly below breakeven -- about the same as Sprint,” he said. In contrast, Janice Aune, pres. of Minn.-based regional carrier Onvoy which counts WorldCom as customer, feared price war as several long-haul carriers emerged from bankruptcy in next few months. In industry with glut of capacity because market share had been valued above profits, “what will compel different behavior after bankruptcy?” she asked: “Nothing, I say frankly.” Aune compared AT&T wholesale rates that she called “phenomenally competitive” with prices discussed by unnamed long-haul carrier. That carrier, about to emerge from bankruptcy, plans to undercut AT&T’s rate by 52%, she said.
Despite German govt.’s reassurance to European Commission (EC) that it wouldn’t provide financial aid to MobilCom until it received EC’s approval, MobilCom spokesman Matthias Quaritsch said company received its first 50-million euro loan from state-backed KFW bank last week. “If [the government] had waited for the European Commission approval, it would have been too late. The company would be gone,” Quaritsch said. He said procedure of EC approval “may take up to 18 months, so the government took a direct way.” However, EC spokeswoman Amelia Torres said “when it comes to rescue aid, the Commission proceeds it as quickly as possible, and a decision can be taken within weeks.”
Battle for control of Gemstar TV Guide International between major shareholder News Corp. and CEO Henry Yuen appears to be nearing climax as joint proposal is submitted to board to restructure management. Gemstar didn’t provide details of restructuring, which was announced late Wed. night, and company officials weren’t available for comment. But people reportedly familiar with talks told Wall St. Journal (WSJ) that Yuen, who founded Gemstar and guided it to merger with TV Guide 2 years ago, would become nonexecutive chairman.
WorldCom revealed late Thurs. that internal review had found another $3.3 billion in improperly reported earnings since 1999, nearly doubling initial $3.8 billion that was announced in late June. As result, company said it would have to restate its financial report for 2000, in addition to already announced restatement of 2001 and first quarter 2002. WorldCom said in news release that it was continuing its internal financial investigation and “investors and creditors should be aware that additional amounts of improperly reported EBITDA [earnings before interest, taxes, depreciation and amortization] and pretax income may be discovered and announced.” Company said it expected further writeoffs of previously reported assets, “including the likelihood that it may determine all existing goodwill and other intangible assets, currently recorded as $50.6 billion, should be written off when restated 2000, 2001 and 2002 financials are released.” It also will reevaluate “carrying value of existing property, plant and equipment.” Meanwhile, House Financial Services Committee Chmn. Oxley (R-O.) said Fri. he planned to subpoena more documents from Citigroup as part of investigation into WorldCom and activities of financial analyst Jack Grubman.
CNBC reported Thurs. that WorldCom had found additional $2 billion in fraudulent accounting on top of $3.8 billion already reported. Company found fraudulent statements dating back to 1999 and 2000, CNBC said. Company originally reported it had issued fraudulent statements in 2001 and 2002. When it originally disclosed fraudulent reporting, WorldCom said it could uncover more accounting fraud as it continued to investigate further back in time.
Communications industry will rebound in 2nd half of 2002 from industry’s “worst recession in decades,” said merchant bank Veronis Suhler Stevenson’s (VSS) Communications Industry Forecast. But Forecast said industry growth “will be tempered by the sluggish consumer magazine and business-to- business media sectors, as well as increased consumer anxiety, slow growth in corporate spending and tentative investors.” Report said communications spending in U.S. would increase 4.8% to nearly $610 billion this year, up from $580 billion in 2001, and would grow at moderate 5.5% compound annual rate 2001-2006, reaching $760 billion, and slightly outpacing predicted 5.4% growth in nominal gross domestic product over same period. Forecast said positive indicators began to emerge in first 2 quarters of 2002 and would set stage for modest recovery in late 2002 and 2003. However, VSS foresaw communications dropping to 5th fastest- growing sector of U.S. economy for 2001-2006 period, after construction, services, finance, insurance/real estate and retail; it was 3rd in 1996-2001. VSS said compound annual growth rate of communications spending was 6.5% in 1996-2001. “We believe that all of these negatives will remain short- term influences and largely will have played themselves out by the end of this year,” said James Rutherfurd, VSS exec. vp and head of investment banking. “Then we foresee a return to an expansive attitude toward communication spending, though we aren’t projecting anywhere near a repeat of the super- heated growth of the late nineties.” VSS said consumer-end spending would drive communications growth in over next 5 years, rising compound annual rate of 6.5% through 2006 (7.5% in 1996-2001), due to solid expansion in cable and satellite TV, consumer Internet, videogame and box-office film makers. Institutional end-user spending will grow at compound annual rate of nearly 6% over next 4 years, VSS projects, compared with rate of 6.6% annually from 1996 through 2001. Institutional spending includes spending on TV programming; professional, educational and training media; business-to- business magazine circulation and trade-show exhibition space; and business information services. Advertising spending is expected to grow about 4% through 2006, down from its “heated” annual pace of 6% from 1996 through 2001. VSS said regardless of economic and social backdrop, consumers will spend more time with information and entertainment over next 5 years. Average American spent 3,570 hours with various forms of media in 2001, 1.4% increase over previous year. This number will expand at compound annual rate of 1.2% in forecast period, ending up at nearly 3,800 hours in 2006. Time spent with advertising-supported media accounted for about 3/5 of total, while consumer-supported media accounted for remaining 2/5. VSS said advertising recession and reaction to Sept. 11 sent broadcast TV advertising into tailspin in 2001. Ad expenditures dropped 8.6% to $38.7 billion for year, first decline in 10 years. However, this year, Forecast projects 4.1% rise in broadcast TV expenditure, to $42.9 billion. Total spending on broadcast- TV advertising will grow at compound annual rate of 3.8% from 2001 to 2006 and reach $49.6 billion, VSS said. Spending on cable and satellite TV advanced 9.7%, to $70.2 billion last year, VSS said. Total spending grew at compound annual rate of 11.7% from 1996 through 2001. This year, VSS projects, spending will increase 9.5%, to $76.9 billion. Overall expenditures for this year through 2006 will rise at compound annual rate of 7.1%, to $106.3 billion in 2006, making cable and satellite TV largest segment of media industry. Following 9 consecutive years of accelerating growth, radio ad expenditure declined 6.2%, to $17.9 billion, in 2001. However, VSS said local ad spending would rebound 3% to $14.6 billion this year, while national radio would post 4% growth, to $3.2 billion. From this year through 2006, spending will grow 6.2% on compound annual basis, reaching $24.1 billion.