Cross-culture cuts

Qwest aims to shed RBOC image Joe Nacchio, chairman and CEO of Qwest Communications, finally got his hands in the U S West cookie jar earlier this month and revealed plans for the major restructuring, pruning and refocusing of the combined companies.

In addition to a large number of job cuts - reducing staff by 35% to 45% - Qwest unveiled plans for new pension and stock option programs for its non-bargained employees. The service provider also hopes to reduce overall costs, including capital expenditures, by 30% to 40%.

Based on rightsizing rather than downsizing, the job cuts are tough to administer but necessary to maintain the company's goal of developing more of an entrepreneurial-like culture, Nacchio said. By the end of 2001, the service provider ultimately will eliminate 11,000 jobs, many of which are white-collar, middle-management positions.

"We have quite a bit of talented employees in middle management, perhaps too many of them," Nacchio said.

Qwest also will eliminate 1800 contractor jobs by the end of next year. The job cuts, a result of the company addressing redundant staff functions, are happening at a good time in the economic cycle, Nacchio said.

"We're in a very hot job market here in Colorado and throughout the West, so it will be an easy transition," he said.

Cuts already have begun at Qwest.

"The first place we started, we borrowed from [Shakespeare's] Richard III when he said, `Kill all lawyers first,'" Nacchio said.

The service provider already has reduced its legal staff by 40% and will continue to cut the rest of its staff down 35% to 45%, Nacchio said.

Specifically, Qwest will reduce the number of vice president positions by 35%.

"We're doing this because we need a streamlined company. That company structure will affect decision making and culture," Nacchio said. The new structure is intended to give Qwest greater expense control, shareholder value and make cash more available for growth opportunities.

The rightsizing is an effort on Qwest's part to address concerns over cultural differences between the two companies.

"The decision to eliminate 11,000 mostly management positions is a clear indication that the company is looking to shed its old-line RBOC image," said Courtney Quinn, analyst for The Yankee Group. But Qwest must be careful, as state and federal regulators will be watching closely to ensure that U S West's service problems do not resurface because of the cuts, she added.

While most of the job cuts at this time are non-union positions, the Communications Workers of America already is talking with the service provider about its contract, which expires in August 2001, according to a CWA spokeswoman. Pension plans and benefits for union employees also could see changes in August, she said.

Despite cost-cutting measures, Qwest announced that it would continue with U S West's video-over-DSL initiative to deliver multimedia over broadband Internet via a new division called Qwest Digital Media.

If Next Level Communications, U S West's main supplier of video-over-DSL equipment, complies with Qwest's overall plan for a 30% to 40% capital cost reduction, the service provider will broaden deployment to include key areas other than Phoenix, where U S West initially focused video-over-DSL services.

The request for cost reduction does not come as a surprise to Next Level, said Julie Carlson, director of marketing communications for the supplier. Both companies had been meeting about cost reductions prior to Nacchio's announcement on Sept. 7, she said.

While Qwest is one of Next Level's largest customers, the equipment provider does not believe the cost reduction will threaten the company's bottom line, Carlson said. Recently, Next Level signed deals with Telenor Norway and Hansol Electronics in South Korea, the later of which is valued at $80 million.

- Eliminate 4500 jobs by Dec. 31

- Eliminate 1600 contractor positions by Dec. 31

- Eliminate an additional 6500 jobs by Dec. 31, 2001

- Change company's pension plan, including medical, dental, insurance and 401K superscript *

- Award 200 stock options to all non-bargained employees

- Create quarterly bonus program for non-bargained employees based on business unit goals

- Introduce an employee stock purchase plan

superscript * Changes will not affect company retirees

Source: Qwest