| Event |
Qwest - US West Merger |
| Background |
On 12th June 1999 Qwest announced simultaneous hostile
bids for US West (a 'Baby Bell') and Frontier International. Both the target
companies had already agreed to merge with Global Crossing. In the end Frontier
was to stay with Global Crossing while Qwest landed USWest in a $36.5 billion
merger agreement. |
Analysis
(to offer your own
analysis go to the 'Current Events' section of the Workshop zone) |
1. Qwest was developing an immense US fibre optic
network which needed to be 'lit'. USWest, with its 29 million customers in 14
States represented a sizeable 'anchor tenant' which would help to fill the
network. For Qwest the acquisition provided direct access to customers through
US West's local networks.
2. As the US telecoms industry is quickly
consolidating the number of attractive targets such as USWest is diminishing.
With Global Crossing making the first move, Qwest felt it had to respond or
risk being side-lined in the industry's rapid evolution.
3. US West was
often seen as the 'runt' of the Baby Bells. It badly needed access to a modern
long-distance network and was prepared to accept the advances of both Global
Crossing and Qwest. |
| Implications for Layer
Structure (see Industry Mapping for the layer
model). |
1. The merger strengthened Qwest's
position within the network layer by giving it access to a sizeable 'local
loop'. With its national network this allows it to offer increased end-to-end
connectivity, meaning it will not have to share its revenues with so many third
party operators.By increasing the reach of its network Qwest is becoming more
horizontally integrated in the network layer.
2. This 'last mile'
of the network is increasingly seen by the financial markets as the key value
area since it has been monopolised.Through various alliances (e.g. with
Microsoft as well as KPMG and Oracle ) Qwest has shown an inclination to move
up the telecommunications layers. In addition to being a network operator (a
carriers' carrier) it is now focusing more upon the services layers, such as
application service provision.
|
| Implications for
Key Questions. |
Qwest's acquisition of US West - together with
WorldCom's acquisition of MCI and Sprint and Global Crossing's purchase of
Frontier - provide evidence of the aggressiveness of the new operators
supported by stock markets. It is clear that the main threat to the major
incumbents (AT&T, BT, Deutsche Telekom, France Telecom and NTT) comes from
the new operators rather than from other incumbents. |
