Qwest seeks edge in federal market

WorldCom Inc. is not the only telecommunications vendor under scrutiny.

Qwest Communications International Inc. too is struggling with financial problems and facing civil and criminal investigations. But the company is not short of government business, said James F.X. Payne, senior vice president of government markets for the Denver carrier.

'I've never been more in demand in my entire career,' Payne said.

WorldCom is laying off 20 percent of its work force. Payne said, 'I continue to hire.'

Qwest and Sprint Corp. are part of a team led by Harris Corp. that this month won a 15-year contract for the Federal Aviation Administration Telecommunications Infrastructure.
See story.

Payne said Qwest expects to announce three more significant federal contracts within a month, one of them a crossover modification on an existing General Services Administration contract.


First to cross over

Qwest holds GSA Metropolitan Area Acquisition contracts for local phone service in Albuquerque, N.M., Boise, Idaho, Minneapolis and Seattle. The company was the first to cross from the MAA program to the FTS 2001 long-distance program when its Boise contract was modified in April to include nationwide Web hosting services.

But Qwest on July 11 became the second telecom carrier-- the first being WorldCom-- in a month to undergo a GSA review for fitness to do government business. The GSA announcement followed by a day Qwest's acknowledgement that it was under criminal investigation by the Denver U.S. Attorney's Office.

The Securities and Exchange Commission since March also has been investigating some Qwest accounting practices. Chief executive officer Joseph Nacchio resigned in June. The company's stock has gone into free fall, and its bond ratings have been reduced.

'It puts a cloud over our head,' Payne acknowledged.

He said the SEC investigation concerns accounting practices for long-term contracts worth about $800 million for access to the carrier's OC-192 fiber cable. 'The rules are rather vague,' Payne said. Qwest chose to interpret them by taking the revenues up front.

'The Justice Department investigation is a little different,' Payne said. 'You're not told up front what the issues are. They've told us about as much as they want to, which is nothing.'

He speculated that Justice's interest could be 'splatter' from WorldCom, which is undergoing SEC and congressional reviews for improper accounting that caused a $3.8 billion restatement of recent earnings.

Qwest's auditor at the time it accounted for the fiber access revenues was Arthur Andersen, which has been convicted of destroying documents to block an investigation of Enron Corp., the failed energy company.

Payne sees the FAA contract win as proof of his company's fitness to serve the government. He said FAA rigorously scrutinized Qwest's financial condition before choosing the Harris team.

'It's a significant indication that we passed the test,' he said, but added, 'We are not out of the woods.'

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