Qwest could become RLEC consolidator, analysts say

Qwest Communications could become a consolidator of rural telcos if and when it divests its long-haul network (as the Wall Street Journal reports it is now looking to do), according to analysts at Stifel Nicolaus, who issued a research note this morning.

“A sale would certainly help alleviate near-term debt maturity concerns for [Qwest] and, we believe, would position the remaining ILEC business to be a player in the M&A game itself going forward,” the analysts wrote.

Qwest has long been imagined as a potential consolidator of rural telcos but has thus far stayed on the sidelines as, for example, CenturyTel acuired Embarq last year.

But the impending maturity of the company’s debt could motivate it to liquidate its long-haul assets sooner rather than later. Qwest has $2.8 billion in debt maturing between now and the end of next year and less than $600 million in cash at the end of 2008. That could pressure the company to sell quickly, Stifel Nicolaus said, and — in today’s tight economy — at a lower price than the carrier might have gotten 6 or 12 months ago.

Splitting off the long-haul assets would essentially undo the merger of Qwest and local incumbent US West enacted in 1999 by Joe Nacchio, who is currently counting on the US Supreme Court to keep him from serving a 6-year prison sentence for insider trading.

Industry prognosticators have cited Level 3, TW Telecom, Global Crossing, AT&T and Verizon as potential bidders for Qwest’s long-haul network.

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