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Qwest For Power

With a revenue of $3.9 billion in 1999, and enormous success in acquiring and keeping customers, Qwest is fast becoming a major player in the IT field.
Written by Ed Sperling, Contributor and  David Hakala, Contributor
So, what do you want to be when you grow up? It's a question that many partners have been asking Qwest Communications in recent months. The company is growing up really fast, and from the looks of it, Qwest is trying to be just about everything from a bandwidth specialist to an ASP service provider.

Not bad for a company that until five years ago had virtually zero visibility in the high-tech world. Under the aggressive leadership of CEO Joseph P. Nacchio, Qwest is plugging into new market opportunities. Nacchio is growing revenue through acquisitions; expanding Qwest's partner programs to attract ASPs, ISPs and Web integrators; and transforming the company into a megacorporation.

Now the big question is whether Qwest will generate lots of quarterly profits or get swallowed up by an even larger suitor. But no matter what happens long-term, Qwest is running at close to the speed of light.

Consider the company's rapid-fire activities over the past year:

  • It plunked down $58 billion for a hostile takeover of US West.
  • It scored a deal with IBM to build 28 data-hosting centers in the United States, and more in Europe through a joint venture with Dutch telco KPN.
  • It launched an ASP service and inked a long list of partnering agreements with integrators, consultants and distributors.
  • It began offering long-distance phone service nationwide.
  • It has quietly formulated plans for an upcoming venture-capital arm, which it so far refuses to talk about.

Even as Qwest juggled all of those efforts, the company also pushed ahead with its original vision of laying fiber backbones around the globe at Internet speed. Not bad for a company that began its life in 1988 largely as an adjunct of the Southern Pacific Railroad under the unassuming name of SP Communications Construction Co.

Steroids With A Smile

Qwest's fortunes changed for the better about three years ago, as the company began to disclose plans for a high-speed network that would position Qwest as a major power broker in the Internet age. An April 1997 filing with the U.S. Securities and Exchange Commission said the company's network would extend 13,000 miles and cover 48 states and 92 metropolitan areas--representing 65 percent of all long-distance traffic in the United States. The company predicted that demand would grow for high-bandwidth voice, data and video services.

Qwest's bet has paid off handsomely. Revenue topped $3.9 billion in 1999, up from a mere $230 million in 1996. And sales will skyrocket even higher this year, as US West's revenue stream flows into Qwest's bottom line.

Unlike many of its rivals, Qwest understood that Corporate America was tired of being held captive by unresponsive telcos. It also was fully aware of the telcos' reluctance to step beyond their traditional role of providing a connection to the corporate doorstep. Anything beyond that would jeopardize long-standing relations with the telcos' service partners.

Breaking The Mold

Qwest's top brass had been well-schooled in what's wrong with regulated utilities, having spent most of their working careers at AT&T and MCI (now Worldcom). And they set out to take advantage of what they knew from years of personal frustration.

"We had less than 2 percent market share of long-distance services, but we saw this as an opportunity because AT&T and MCI-Worldcom were having trouble retaining customers," says Roger Attick, Qwest's senior VP of alternate channel marketing and an MCI veteran.

Qwest went after the largest accounts itself. But it also began building relationships with solutions providers to help win other customers, and keep them--a radical departure from what telcos had done in the past. It was largely the telcos that owned the accounts, and they in turn invited a chosen cadre of voice integrators to work with them. Qwest, in contrast, was pushing heavily into the data-integration space, and it realized from the outset that it was the integrators that owned the accounts, particularly in vertical markets.

"We made decisions that required capital investments in things like point-of-sale tools, and at the same time we were striving to reduce intervals and become more efficient ourselves," Attick says. "Our partners can go through an order electronically, which reduces the risk of errors. It also eliminates faxes and FedExes. And we added several layers of security and firewalls."

The company's motto for its partners is "No heavy lifting," and that philosophy has paid off handsomely so far.

Just ask Asera Inc., an ASP that opened shop last year. The Belmont, Calif., company signed on with Qwest because of its responsiveness and flexibility. "We looked at over a dozen service providers before settling on Qwest," says Eric Dentler, Asera's director of business development. "They have the best business-to-business backbone in the country, combined with first-class data centers."

Dentler says partnering in the Net economy means many different things. "Partners have to meet technical and business-fit criteria. We would not have gone with Qwest if they did not 'go deep' with lead-sharing, joint marketing and shared solution sets. They also have very responsive people. We had 50 racks going into Qwest CyberCenters, and we asked them to get everything turned on in half the normal time. We were very pleasantly surprised that they did so without a hitch. Few large companies would pay that much attention to a start-up."

Smart People

Qwest also has set up a Qwest Business Partner Program Advisory Panel, which is where the knotty issues of partnering are explored. "We talk about how to do joint sales calls, lead-sharing, co-marketing, etc. [Qwest] is very "open to learning new ways to partner," says Dentler, who represents the ASP community on the panel.

Shake On It

Qwest is nothing if not a consummate deal-maker. The company has been inking partnerships of all types at an astounding rate.

IBM is among Qwest's closest partners. Jim Gant, VP of global e-business hosting at IBM, says the hosting field is crowded only by announcements. Gant says that gives a joint operation between IBM and Qwest a high probability for success.

"This deal will succeed because of the core competencies of each of us," Gant says. "We're the best at building data centers; they're good at managing networks. We're very comfortable with this partnership. We have three centers under construction, and three to four will be open by the end of the year."

Under the terms of the Qwest deal, IBM will build up to 28 data centers nationwide and will occupy 25 percent of the floor space in each of them, guaranteeing that Qwest has a stable tenant with deep pockets. In turn, Qwest will offer IBM's raft of services to complement its own.

But Qwest's partner initiatives don't end with IBM. The company has been inking deals with virtually all top vendors. Geoff Nyheim, director of global consulting at Microsoft, says that Qwest's presence in the market has grown so big that it's risky not to do business with the company.

"There are some partners who are incredibly aggressive," Nyheim says. "Do we do business with them? We have to."

In addition to vendor relationships, Qwest is aggressively targeting integrators, resellers and distributors, and using them as an entry point into new opportunities. Unlike data products, end-user loyalty in the communications space is almost nonexistent. Qwest hopes to change that through a complex web of partnerships.

Tomax Technologies, for one, has built its business providing click-and-mortar solutions to retail chains, offering transaction management and workflow and administration services.

Until this year, the Salt Lake City-based integrator has installed its Retail.net on servers at clients' headquarters. But in January, it launched an ASP version using Qwest's Q.ASP partner program. It now can offer a fully outsourced version along with access via virtual private networks, DSL or dial-up connections. Each store chain's central server can be hosted and managed from a Qwest CyberCenter.

"Having the backbone support from Qwest allows us to offer customers complementary ASP solutions that enable dramatic returns through reductions in IT infrastructure costs while providing a foundation for business innovation," says Eric Olafson, CEO of Tomax. "This is the state of the art in clicks-and-bricks innovation."

Among the innovations Olafson plans are in-store kiosks that allow customers to shop and check item availability in the store they visit or across the entire chain. Home-shopping customers will be able to buy via the Web and return merchandise to their local stores.

Giant Question Marks

There is little argument that Qwest's plans are aggressive and ambitious. Using its core infrastructure, it plans to offer a variety of broadband access services, including DSL and wireless managed hosting application services, and to push its market globally.

But there are questions about whether the company can execute those plans.

"The biggest problem we have right now is keeping up with the extraordinary demand for our services," says John Scarborough, VP of marketing and business markets at Qwest. "We can do a pretty good job on the direct side of the market, but the whole partner model is a very successful part of our business. In the hosting space, we're not just hosting Web pages. We're now doing applications management."

IBM, despite its broad relationship with Qwest, has kept the door open to doing business with Qwest's rivals, both in the United States and overseas. "We're very comfortable with our partnership with them," says Gant. "But Qwest is not our only partner. We have several other relationships under development."

Breaking Ranks

Meanwhile, some partners aren't quite clear about some of Qwest's initiatives. One Novell source, who works with Qwest,

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