Qwest admits improper accounts

Qwest's admission of guilt follows that of energy giant Enron, telecoms firm WorldCom and photocopier company Xerox.

The revelation that these firms misled investors by disguising the true state of their financial affairs led to the recent stock market rout around the world.

Qwest - the dominant local telephone company in 14 states - is already under investigation by the US Department of Justice and the financial regulator.

Out in the open

The latest blow to investor confidence in the company led to 26% being wiped off the value of the company's stock on Monday.

This left the shares worth $1.11 apiece, down 89% from the start of the year.

"Even though restating the numbers will likely cause their stock price to take a hit, again, it's important to get it all out in the open, early, so they can deal with it and let it heal," said independent telecoms analyst Jeffrey Kagan.

Solvency worries

Denver-based Qwest said it improperly accounted for about $1.16bn (£740m) in sales of optical capacity on its network, as well as sales of communications equipment.

It will restate its profits for 1999, 2000 and 2001 in several months' time.

Qwest International
Founded: 1995
Floated: 1997
57,000 employees
2001 revenues: $18bn

The firm has admitted that the uncertainty over its accounts may jeopardise some of its funding agreements.

Qwest had $26.5bn in debt at the end of March, but has insisted that it is still solvent.

Fellow US telecoms firms Global Crossing and WorldCom have already filed for bankruptcy following accounting scandals.

International ramifications

In addition, the firm's international arm withdrew its financial forecasts for 2002.

Qwest's network
30 million customers
600 million
e-mails/day
240 million phone calls/day
190,000 miles of wire

Chief executive Dick Notebaert blamed the ongoing weakness of the telecoms business rather than improper accounting at its US arm.

"When I look at the general economy, I don't feel confident making any predictions about recovery," said Mr Notebaert.

"I've heard people predict we're hitting the bottom for the past few quarters and there's been a lot of errors," he said.

Crackdown

The news comes after the US Senate has legislated to protect against future cases of corporate fraud.

That inspired last week's stock market recovery.

But the latest bad news from Qwest may unnerve investors on Monday.

US firms have been given until 14 August by the Securities and Exchange Commission to certify the accuracy of their financial statements.