After failing to land MCI, Qwest is between a rock and a hard place

Now that Verizon has announced it is acquiring MCI, and SBC is buying AT&T, where does that leave Qwest?

Late last year, the smallest of the four major regional carriers had announced that a VoIP offering was imminent. But as an article in my hometown Oregonian newspaper reports today, those plans are on indefinite hold.

Qwest's $17 billion debt level is the culprit. That's more than twice their $7.4 billion market cap. When you service that much debt, without abundant capital or collateral, there can be little money left for service and infrastructure upgrades. Not only has Qwest not built out VoIP services, but they don't even have a cellular network. They are a Sprint PCS reseller.

Experts quoted in the Oregonian article are not bullish onQwest. In light of the migration of residential users from landline toVoIP and cellular connections, Qwest is in a bad way.

"Qwest is faced with a big problem. They're going to lose huge amounts of global accounts,"In-Stat/MDR analyst Keith Nissen told the newspaper.

The MCI deal could have helped Qwest with VoIP. MCI's existing VoIP assets presumably would have been included in the proposed purchase price. But a richer Daddy came along, and Qwest has fewer options than they would like.

But still, Qwest is not on some sort of death watch. They do have strategic alternatives, but none of them are as desirable as acquiring MCI would have been for them.

For VoIP, I'd look for Qwest to try and acquire a small but nimble, privately held access provider, and then use the acquisition to offer VoIP within Qwest's current 14-state service area. Out-of-area VoIP could be a secondary income stream as well as a springboard to national services.

For a cellular provider Qwest might acquire, don't even think about Alltel.Their market cap is $17 billion. Maybe Qwest could put together a deal to buy some local cellular operators within their service area.

None of these scenarios sound all that rosy. I'm no equities analyst, but there's a reason that Qwest is trading at about $4 a share. Verizon? $36 and up.