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Monday, July 19, 1999 Published at 15:38 GMT 16:38 UK

Business: The Company File

Telecoms rivals dial up a solution

The provision of high-speed Internet access is driving the mergers

Four US telecoms companies involved in a long-running takeover wrangle have resolved the issue.

Originally Global Crossing, an undersea fibre optics company, had agreed deals with telephone operators US West and Frontier.

But long distance telecoms group Qwest then put in separate offers for both companies.

Now, a compromise has been reached to end several weeks of battling for control.

Qwest is to merge with US West, while Global Crossing will acquire Frontier.

Penalty for backing out

US West, which is based in Denver, is the smallest of the five Baby Bell regional telephone companies that were created in the l980s after the break-up of AT&T. It has 25 million customers in 14 states.

It decided to accept the $36bn offer from Qwest, and ended the $31bn merger it had agreed with Global Crossing. US West will have to pay a penalty for pulling out of the deal with Global Crossing, but this has been halved to $420m.

The new company will be worth $65bn, adding to the consolidation in the US telecoms industry.

The companies, which will go by the Qwest name, say they plan to expand their local data operations to another 25 cities outside US West's current client area.

[ image: US West's Sol Trujillo:
US West's Sol Trujillo: "We will create a powerhouse"
"Together we will create a powerhouse with end-to-end reach, innovative products, integrated wireline and wireless services, and broadband and Internet capabilities that are truly cutting edge," said Sol Trujillo, US West's chairman.

The merger comes not a moment too soon for US West.

Other Baby Bells have merged with each other, while long distance operator AT&T has emerged as a new threat to the regional companies after it purchased 50% of the US cable industry.

A new Frontier

Meanwhile, Global Crossing and Frontier agreed to go ahead with their original $11bn merger after Qwest withdrew its competing $12bn bid.

Frontier is a long-distance carrier based in Rochester, New York.

Global Crossing would now be looking at products to put on its network, said chief executive Bob Annunziata, and could be making more acquisitions.

[ image: Bob Annunziata: Global Crossing might make more acquisitions]
Bob Annunziata: Global Crossing might make more acquisitions
Both Qwest and Bermuda-based Global Crossing are building worldwide fibre optic cable networks to give customers high-speed Internet access. Each was keen to acquire a customer base to make its networks profitable.

Analyst Peter Treadway commented: "One thing this whole episode will do is educate people that yes, it's wonderful to have a state-of-the-art, almost science-fiction quality network, but you need customers on that."

The double deal seems a suitable compromise all round. A costly bidding war has been avoided, and Global Crossing and Qwest have won the assets they needed.

It also takes takes pressure off their shares - both companies had seen their stock dip in value by more than 20% during the bid period.

"Frontier is worth a lot more to Global Crossing than it is to Qwest," says Peter Treadway. "Frontier provides Global Crossing with a nationwide fibre optic backbone, which Qwest already has."

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