Qwest: An Example of What to Do When Only "Bad" Choices Are Available

Sometimes a company might find it has only bad choices available to it. For Qwest, that might arguably be said to be case. Faced with huge debt burdens, Qwest sold off its high-growth wireless business and then spun off its cable-TV division.

The moves allowed U S West to trim debt, avoid expensive capital investments and maintain the healthy dividends long associated with a traditional telephone operator. But those moves also made a growth strategy nearly impossible, since other arguably comparable larger telcos such as AT&T and Verizon used wireless to underpin most of their growth over the last decade, while video services now are starting to be a material factor for the fixed services business.

From a short term financial perspective, divesting those assets was helpful, but strategically ensured that Qwest would not have the industry-standard growth drivers of wireless and video. Of the two, the lack of a wireless offering was most significant.

To be sure, Qwest had other problems. Its service territory was the least dense of any of the former Regional Bell Operating Companies, which would have been an issue even if Qwest had retained its wireless and video assets.

Nor will Qwest be the last company to face the problem of having only tough choices to make. That doesn't mean a firm cannot harvest the returns from a declining business for a time. That is precisely what EarthLink is doing, for example. But there is no long-term future.

Qwest, and many other firms in telecommunications, likely face issues not quite as severe as EarthLink does, but with the same limited set of strategic options. Communications remains a scale business, so the largest firms have had an advantage in both wireless and video. The largest firms also will have similar scale advantages for the next wave of potential innovations as well.

Though access providers of all sizes face some fundamental issues, such as their place and power within the Web and Internet ecosystems, wired services providers face such issues most acutely.