Qwest Communications International - Expands Long-distance And Internet Services Through Acquisitions, 1998-1999

EXPANDS LONG-DISTANCE AND INTERNET SERVICES THROUGH ACQUISITIONS (1998-1999)

In March 1998 Qwest announced it would acquire long-distance carrier LCI International Inc. for $4.4 billion. The deal created the fourth-largest long-distance carrier in the United States behind AT&T, MCI Worldcom, and Sprint Corp. The combined companies had about 5,800 employees and revenue of $2.3 billion. The acquisition gave Qwest 2 million long-distance customers and a well-established sales force.

Qwest activated the portion of its fiber network that connected Los Angeles, San Francisco, and New York, giving the company more than 5,400 route-miles of its network in service in April. The company also joined with Cisco Systems Inc. and Nortel to create a new IP backbone network called Internet2 for use by the academic community. Qwest donated $500 million worth of bandwidth to the project.

Expanding into Europe, Qwest acquired EUNet, a European ISP based in Amsterdam with about 60,000 customers, for $154 million. In mid-1998 Qwest announced it would offer long-distance service in Europe. To head its international operations, Qwest snared John McMaster, another AT&T executive. The company planned to build a fiber-optic network in Europe with Dutch telecommunications company KPN.

Qwest began building 10 CyberCenters around the United States to offer a range of Web-hosting and multimedia applications to Internet customers. Four centers opened in 1998 in Los Angeles, New York, San Francisco, and Washington, D.C., with six centers slated for 1999. To boost its CyberCenter program, Qwest acquired Icon CMT, which provided Web hosting and related services, for $185 million.

In December 1998 Microsoft invested $200 million in Qwest, taking a 1.3 percent minority interest in the company. In exchange Qwest would use the Microsoft Windows NT Server OS as the basis of its electronic commerce and other services to be introduced in 1999, including Q-Commerce-Retail, an online storefront service, and the Qwest Business Partner Program, which offered a wide range of Internet services.

In early 1999, Qwest introduced its first Internet services for consumers and small businesses. Qwest introduced DSL service for businesses in 13 markets through Rhythms NetConnections and Covad Communications. Qwest also announced it would offer paging, conferencing, and faxing services from its Web site. In a move to increase its bandwidth, America Online Inc. selected Qwest to provide it with national Internet connectivity services in a deal valued at $13 million.

Qwest gained additional financing with a $1 billion revolving credit facility from a consortium of banks and financial institutions led by Bank of America. In addition, Bell South Corp. agreed to purchase a 10 percent interest in Qwest for $3.5 billion. The funds enabled Qwest to reduce the debt it took on for international expansion and helped the company finance construction of its fiber-optic network. Qwest completed its national fiber-optic network with 18,500 route miles in September 1999. In December it added 4,300 route miles in Canada and Mexico. Qwest's 1999 revenue was $3.92 billion, with net income of $458 million, compared to 1998 revenue of $2.2 billion.