Add Qwest to the woeful enterprise list

Add Qwest to the list of carriers bludgeoned by the enterprise market.

The RBOC/IXC recorded a disappointing second quarter due in large part to cutthroat competition in the enterprise market. Qwest cited intense pricing pressure in selling voice and data services to corporations, the same concerns voiced previously by AT&T and MCI in their quarterly earnings reports.

“When the competition says, ‘I’ll do this price or that price,’ we’ll walk away,” Qwest CEO Dick Notebaert said during a conference call with financial analysts. Notebaert characterized the competition in the enterprise market as “brutal.”

Qwest posted a loss of $776 million for the second quarter ended June 30. Revenue was also down more than 4% from last year.

According to Lehman Bros., prices of commercial telecom services have been dropping in the double-digit percentages for the past two years. At the same time, competition has intensified.

RBOCs with approvals to offer long-distance have built out nationwide IP networks to go after the large enterprise data business once owned by the IXCs. The IXCs, meanwhile, are focusing more intently on the enterprise market as they retreat from consumer and residential telecom following recent rulings by regulators on wholesale access policies.

Earlier this year, AT&T chief David Dorman pledged the carrier “will not be beat on price” in the enterprise market in order to maintain and grow market share. Sprint has also pledged to keep enterprise prices low, and MCI eliminated much of its debt during Chapter 11 bankruptcy reorganization so the carrier can afford to be more aggressive on price.

Qwest, meanwhile, was an IXC before it was an RBOC. The carrier already had a national OC-192 optical fiber backbone in place before acquiring RBOC US West five years ago.

Some analysts on the conference call inquired as to whether Qwest might seek strategic alternatives for its national backbone, such as selling it off and leasing back capacity, in order to relieve some of the costs associated with owning and operating it. Reducing such costs might make Qwest better able to compete on price in the enterprise market.

Notebaert indicated that that option was not currently a high priority for the carrier. A better option, he said, was to make the “on- and off-ramps” to the fiber-optic backbone more efficient — and less costly — so Qwest can attain break-even results on enterprise cash flow.

“When we get to the December quarter — March quarter at the latest — and we’re running break even, that [backbone] is not a bad asset,” he said.