Qwest wins another round: Can all the egos survive?

In the ongoing saga for ownership rights to U S West and Frontier Communications, egos abound as Qwest Communications and Global Crossing have made strides to acquire the companies. Last week, U S West agreed to enter into talks with Qwest, following Frontier's decision to do the same.

U S West is now apparently sorting out the details of a potential combination with Qwest and is trying to move forward with a "merger of equals" rather than an acquisition. When Qwest's original proposal surfaced, U S West said it would move forward with the Global Crossing merger of equals. But now, with the potential alteration of nomenclature and an increased offer, U S West appears to be leaning toward Qwest. Meanwhile, Global Crossing has made no announcements to alter its bids for U S West or Frontier. Currently, Qwest's bid to acquire U S West is about 20% higher than Global Crossing's merger offer of approximately $29 billion.

"Although things are turning in favor of Qwest, both deals might fall apart in two months," said Hillary Mine, executive vice president at Probe Research. When top egos cannot get together on opinions, problems will appear, especially if they can't cooperate, she added.

In the proposed arrangement with Global Crossing, U S West CEO Sol Trujillo would be co-CEO with Robert Annunziata. Qwest, which was planning a pure buyout, now has realized that bending its original plan to reflect a more equal sharing of management responsibilities may entice U S West.

Though Qwest and U S West may now be planning a merger of equals, the reality in the end may be quite different, said Mike Smith, an analyst with Stratecast Partners. In the case of Qwest's merger with LCI, the deal was set up as a merger of equals in which executives would share duties. But only a few months later, much of LCI's top management left the combined company.

"[Qwest President and CEO Joseph] Nacchio will not play back seat to anyone - it will be his company to build or drive into the ground with only his signature on it," said Smith. Qwest is in the financial driver's seat compared to Global Crossing, he added.

"Qwest clearly has greater resources, and Global Crossing simply may have not been expecting something [like Qwest's offer] to develop," said Steve Koppman, a senior analyst at Dataquest.

Taking the lead in making high-speed connections more affordable for consumers, U S West started offering entry-level wholesale digital subscriber line service last week for $19.95 a month.

Megabit Select is not an always-on connection like other DSL offerings. Instead, customers access a modem pool in the DSL access multiplexer that is manually connected when a user wants to access the Internet.

"One of the problems we face is that customers don't have a lot of choice in high-speed access. We think that not having the connection on all the time is a pretty powerful choice," said Mike Rouleau, vice president of marketing at U S West !nterprise Networking. Unlike other DSL services, Megabit Select is geared toward the casual weekend and evening Internet user. What will attract them is the price - $19.95 a month for the line and $17.95 a month for Internet access at 256 kb/s.

"The entry point is the same as a second line. The question isn't why get a high-speed connection anymore, now it's why not get a high-speed connection," Rouleau said.

Cutting prices also brings in customers that the carrier can upsell later. "This will get people hooked so they start using [high-speed services] more and more," said Peter Nighswander, director of competitive telecommunications at The Strategis Group.

The competition that is heating up in the residential high-speed market should put an end to dial-up access, Nighswander added. "The day of the dial-up modem is going quickly."