Qwest CEO forecasts prolonged downturn

Despite the Fed’s 10th interest-rate cut of the year earlier this week, Qwest Chairman and CEO Joe Nacchio today predicted tougher times ahead for the communications industry and the macro economy as a whole.

Speaking at the JP Morgan H&Q Millennium.01 Global Telecom & Media Conference, Nacchio said he expects more painful bankruptcies in the industry.

“There’s a lot of assets in the ground that the bondholders are going to get nothing for…all things put into the ground, all buildings built to host things are not necessarily valuable because they’re there,” he said.”

The valuable assets of companies that go bankrupt will tend to be sold in prepackaged bankruptcies, he said. Even then, Nacchio said it will be sometime in the middle part of this decade before a healthy industry emerges, with fewer suppliers, more rational capital structures and greater capital leverage.

“I think we probably have another year or two of real pain if you’re in a pure asset play. I think if you’re in one of the big guys who are not defensible--I won’t name them by name--you’ve got a real tough time with the industry structuring around you for the next three or four years,” he said

“I don’t believe everything I read in the newspapers about how well things are going. I don’t care where interest rates go. Those of us who spend a lot of capital are taking capital budgets down. The monetary effect of the fed intervention is relatively nominal, which is why they’ve had 10 of them for the first time ever…We’re going to play it in Qwest very conservatively for 2002. We’re not assuming economic recovery.”

As a result, Qwest plans to accelerate its announced job cuts and limit capital spending to bring the company to free cash flow positive in the second quarter of 2002, he said.

Regarding the news that the company was suspending all network efforts undertaken by contractors, Nacchio made light of the serious reaction from the press.

“That’s how you actually contain cost,” he said. “You stop doing something.”