Qwest Communications International made two significant announcements this week. One got a lot of press. The other didn’t, but maybe it should have.
The announcement that got loads of attention was, of course, Qwest’s decision to lower guidance for 2002. Although not entirely unexpected, the company’s new projections are lower than Wall Street had anticipated. The company now says revenue in 2002 will fall in the range of $19.4 billion to $19.8 billion with EBIDTA in the range of $7.1 to $7.3 billion. That’s a mere 5 to 7 percent growth rate over 2001 revenue, and the projections fall well below Wall Street’s consensus estimate of $21.42 billion in revenue for 2002.
I have no doubt that it was very difficult for Qwest Chairman and CEO Joe Nacchio to issue the revised guidance. Four short months ago, Nacchio was bragging about how Qwest had managed to stay on Wall Street’s good side, even after competitors like Level 3, Global Crossing and Williams Communications had fallen from grace. He said Qwest would be able to weather the declining economy because of its US West purchase. It’s clear now that he was wrong.
But Qwest also reported some good news this week that went largely unnoticed. The company is renewing its commitment to Internet2 for five more years with an investment of $300 million. Internet2 is the university-led research consortium that is working on advanced Internet applications.
Qwest’s renewed commitment to I2 is significant, because it breathes new life into the floundering project. In the past, critics have blasted I2 as unnecessary, calling it nothing more than a playground for researchers who were miffed when their Internet dream became commercialized. But even if that’s true, so what? If researchers don’t have a place to “play,” they can’t make those accidental discoveries that end up changing our lives.
Over the past several years, most companies within the telecom industry have slashed their R&D budgets in order to keep expenses down and profits up. They’ve been kowtowing to Wall Street and not thinking ahead. The results of this short-sightedness will be catastrophic if groups like I2 are allowed to fail as well.
Qwest’s decision to go ahead and invest $300 million in I2 at a time when the service provider is cutting its capital-expenditure budget by $1 billion and laying off another 7,000 people may look a little questionable on its face, but it’s a smart move.
Joe Nacchio may have fallen from favor on Wall Street, but he just got a vote of confidence in my book – for investing in the future.