Qwest shares dive after fresh accounting woes

The telecommunications sector suffered fresh upheaval yesterday after Qwest Communications, which is already under federal investigation for suspected accounting irregularities, confirmed that it would have to restate its results for 2000 and 2001.

Qwest, based in Denver, said it would restate its financial results because it improperly booked $1.16bn (£745m) in sales and other items in 1999 to 2001. It shares swooned on the news, slipping 34 cents to $1.16 in early trading. The stock has fallen 89 per cent this year

Executives at Qwest tried to put the best face on its newest troubles, insisting it was part of an effort to turn over a new leaf after the resignation last month of former chief executive Joseph Nacchio. He was forced out after inquiries into the company's dealings were launched by the Securities and Exchange Commission and the US Department of Justice.

"The right thing to do is share the information we have with the shareholders and the public," declared the new chief executive of Qwest, Richard Notebaert. He also said the company was withdrawing its earnings projections for 2002. Qwest is the dominant local service provider in 14 western US states.

The troubles at Qwest are just one part of a kaleidoscope of difficulties in the sector. WorldCom filed the world's biggest bankruptcy one week ago as it too faces serial federal investigations. Global Crossing and Adelphia Communications have similarly stumbled.

The crisis in telecoms will be discussed at a US Senate hearing on Capitol Hill today. Among those expected to testify before the Senate Commerce Committee are Afshin Mohebbi, chief operating officer at Qwest, John Sidgmore, chief executive at WorldCom, who recently replaced Bernie Ebbers, and John Legere, the chief executive at Global Crossing.

Investigators are looking into whether Qwest improperly booked proceeds from the sale of capacity on its network all at once, when they should have been phased into earnings over a period of time. There are also suspicions that the company may have indulged in "swaps" of capacity with other service providers which may have misleadingly boosted traffic numbers.

Qwest said it would offer new guidance on its 2002 outlook on 8 August. But it warned it would be unable to comply with an SEC order that it certify all of its results by 14 August. It said more time was needed for its new auditor, KPMG, which replaced Arthur Anderson earlier this year, to examine the numbers.

It would not comment, meanwhile, on the impact any new problems might have on its debt status and its relationship with its lenders.

Qwest said it may be required to restate all sales of optical capacity on its high-speed communication network, as well as sales of equipment. The company said it also improperly accounted for certain expenses incurred in 2000 and 2001.

"The company believes that ... the amount of the additional revenue adjustments may be significant," Qwest said in a statement. "Any adjustment of all revenue for optical capacity sales may have a material effect on operating income, net income or earnings per share."