Qwest

Founding

Founded in 1996 by Philip Anschutz, Qwest began in an unconventional way. Anschutz, who owned the Southern Pacific Transportation Company at the time, established the subsidiary Southern Pacific Telecommunications Company and began installing the first all-digital, fiber-optic infrastructure along his railroad lines and connecting them into central junctions in strategic locations to serve businesses with high-speed data and T1 services. In 1997, the Southern Pacific Transportation Company merged with Union Pacific, but the telecom assets were kept separate from the railroad merger with Union Pacific. The telecom company was renamed Qwest and became a publicly traded company in June 1997.

Qwest Communications grew aggressively, acquiring internet service provider SuperNet in 1997, followed by the acquisition of LCI, a low cost long-distance carrier (located in Dublin, Ohio and McLean, Virginia) in 1998, and followed again by the acquisition of Icon CMT, a web hosting provider and European-based EUnet International Ltd., also in 1998. This launched Qwest as not only a provider of high speed data to the niche market of corporate customers, but also a quick-growing residential and business long-distance customer base that it quickly merged into its data service.

US West acquisition

Qwest merged with "Baby Bell" US West on June 30, 2000 through an apparent hostile takeover for $48 billion.

Philip Anschutz owned 17.5% of the resulting company. Unlike prior merger transactions between the Baby Bells, US West ceased to exist when it was immediately absorbed into Qwest with all subsidiaries of US West becoming directly owned by Qwest.

As a condition of the merger, Qwest was required to sell off its long-distance operations in the 14-state boundary in which it provided local telephone services. They were eventually sold to Touch America. In 2003, Qwest acquired Touch America from 360networks after Touch America filed for bankruptcy. The acquisition ended ongoing disputes between the two companies in which Touch America alleged Qwest continued to illegally sell long-distance services within the former US West region.

Directory operations sale

In 2002, Qwest agreed to sell its directory operations, QwestDex, to private equity firms The Carlyle Group and Welsh, Carson, Anderson & Stowe for $7 billion. The sale allowed Qwest to generate cash to fend off a bankruptcy filing to which it may have had to resort due to significant amounts of debt it had incurred since the collapse of the dot-com bubble. The resulting company was named Dex Media, when the sale was completed in 2004.

Alliances

Qwest Communications has partnered with other major communications companies during its history.

In Europe, Qwest partnered with the Dutch national telecom operator KPN to create the pan-European data communications and hosting company KPNQwest. KPNQwest was formed in November 1998 and went on to launch an initial public offering on the Nasdaq and Amsterdam stock Exchanges in November 1999. KPNQwest collapsed in bankruptcy in 2002.

On April 22, 2010, CenturyLink announced it would acquire Qwest in a transaction of 0.1664 shares of CenturyLink common stock for each share of Qwest common stock. CenturyLink shareholders would hold a 50.5% share of ownership in the combined company, while Qwest shareholders would own the remaining 49.5%. The valuation of CenturyLink's purchase as of April 21, 2010, was $22.4 billion, including the assumption of $11.8 billion of outstanding debt held by Qwest as of December 31, 2009. Qwest started to do business as CenturyLink from August 8, 2011.

Legal and regulatory history

Revenue-recognition scheme

Between 1999 and 2002, Qwest engaged in a series of accounting practices intended to make its declining telecommunications-services business appear to be achieving double-digit growth. According to the U.S. Securities and Exchange Commission (SEC), senior management relied heavily on non-recurring sales of fiber-optic capacity and equipment while describing much of the resulting revenue to investors as recurring communications-services revenue.

The SEC alleged that Qwest fraudulently recognized approximately $3.8 billion in revenue and excluded $231 million in expenses. Other accounting errors included a $56 million overstatement of operator-services revenue, $200 million in improperly capitalized costs and an $850 million understatement of expenses connected with the US West merger and restructuring charges.

Qwest also entered transactions involving fiber capacity and equipment in which non-recurring revenue was used to meet quarterly projections. The SEC alleged that the company made false or misleading statements concerning its network, strategic relationships, executive compensation and the source and quality of its reported growth.

Effect on the US West acquisition

Qwest entered an agreement to acquire US West in July 1999. Because the transaction was financed with Qwest shares, a sustained decline in Qwest's stock price could have allowed US West to terminate the agreement. The SEC alleged that Qwest management placed intense pressure on employees to meet earnings projections and prevent the share price from falling further.

When the merger closed in June 2000, Qwest stock was trading above $50 a share. The SEC subsequently described the Qwest shares used in the transaction as a currency that had been significantly inflated by the company's false and misleading statements. A later SEC complaint stated that approximately $40 billion of Qwest securities were issued in connection with the merger and that the fraudulent scheme kept Qwest's stock price high enough to allow the transaction to be completed.

After the accounting problems emerged, Qwest's market capitalization fell from approximately $91 billion to $1.9 billion. Its share price, which had exceeded $60 in 2000, declined to approximately $1 by 2002. The company ultimately restated approximately $2.2 billion in revenue.