Qwest And Its Telco Quarry

Qwest CEO Richard Notebaert, who waged a frenetic but ultimately futile battle to acquire MCI , is looking at a new strategy: patient acquisition.

The path to his prey will be possible assets that could be carved out of the upcoming regulatory review of Verizon-MCI and SBC-AT&T mega-mergers. During a conference call Tuesday, Notebaert said he’ll watch closely for buying divested assets.

“We’d be very open to that. My hope would be that they would be very open to letting us buy it. Based on our own experience, our discussions in Washington and at the state level, there are going to be divestitures and conditions.”

Notebaert believes divestitures are necessary in the two proposed industry blockbusters. This is not only to help provide more choice to customers, but so that smaller telecoms don’t get squeezed out by the telecom giants.

“The government will take a hard look at concentration levels based on these mergers,” Notebaert said. “Lots of us are looking at how we could create a meaningful third [competitor].”

Some industry analysts have voiced concerns about duopoloy pricing pressures resulting from the Verizon-MCI and SBC-AT&T mega-mergers.

The Federal Communications Commission (FCC) and Department of Justice (DoJ) routinely approve large communications industry mergers, provided the parties sell certain network assets or subscriber accounts to rivals.

Similar conditions are expected to be imposed on the Verizon-MCI and SBC-AT&T match-ups. It’s too soon to say which assets will have to be jettisoned. The review process is expected to take between a year and 18 months to complete.

Notebaert did not rule out buying a second-tier long-distance or enterprise services provider before the regulatory reviews. MCI was the last large carrier remaining, and Qwest is out of the running for those assets.

As for MCI, which he blasted yesterday, Notebaert was reflective, even wistful, that the company wasn’t able to convince its directors that his $9.7 billion offer was superior to Verizon’s $8.4 billion offer.

“We never felt we were negotiating with MCI,” he said. “[Our offer was] unsolicited and not warmly received.”

The CEO made his comments during the Denver carrier’s quarterly earnings call. During the first quarter, Qwest earned $57 million, or 3 cents per share, compared to a loss of $310 million, or 17 cents per share, for the same period last year.

The results were helped by sale of some assets. Not counting that benefit, the company’s earnings missed analysts estimates by a penny.

Revenue for the three-month period was $3.45, down slightly from $3.48 billion during the first quarter of last year. Bright spots included DSL sales, the company said.