Why Qwest Pulled the Plug on NorVergence

    by Christopher Menkin

Qwest Communication, one of the major suppliers to NorVergence, perhaps the number one service provider, was the main factor to three companies first trying to stall off liquidation with a Chapter 11 bankruptcy.  It did not work.  Once the Qwest $15 million was realized, it quickly brought other telephone companies to the hearing to realize that over $30 million was owed to them alone.

One of the reasons the plug was pulled is the financial trouble of Qwest itself, who yesterday posted a second quarter net loss of$776 million, compared to a loss of $64 million for the same quarter in 2003. Revenues were also down from $3.6 billion to $3.4 billion in the same time period. This does not include figures for companies such as NorVergence, who will appear in the next quarter.

The results included special items totaling $487 million, or 27 cents per share, much of that from the placement of $300 million in a reserve for ongoing litigation in shareholder lawsuits and securities investigations. Qwest officials said that puts the total in the reserve at $500 million.

There also was a $127 million charge associated with some 1,600 job cuts, primarily in the information technology division. Qwest, which operates in 14 West and Midwestern states including Minnesota, has said they expect an additional 1,800 layoffs by the end of the year.

Red ink will continue.

While the revenue was down, profits, too, Qwest reported a 6 percent increase in revenue for long distance service and a 3 percent increase in data and Internet revenue. Access line losses declined 1.3 percent from the first quarter but were unchanged in a year-over-year comparison.

Qwest chief financial officer Oren Shaffer said the growth in key areas was offset by competitive pricing pressure, the access line losses, and changes in the industry. He did not mention “bad accounts.”

"I would like to characterize our growth as slightly below our expectations primarily due to unexpected competitive price pressure especially in our enterprise market," he said.  He did not mention NorVergence.

In the second quarter, Qwest said it added 109,000 DSL subscribers to put its total at 853,000 and said it hopes to have 1 million DSL subscribers by the end of the year. Qwest said it added 733,000 in-region long-distance lines in the second quarter, giving it 4.1 million total lines.

It is obvious that Qwest could not carry NorVergence customers,and its debt owed by the company itself. Whether it will survive in this changing wireless internet world is yet to be seen.