Qwest: Railroad Fiber, a $3.8B Revenue Fraud and Refusing the NSA

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Qwest began in 1996 when Philip Anschutz, owner of the Southern Pacific railroad, laid an all-digital fiber optic network along his existing track, sidestepping years of right-of-way fights. When Southern Pacific merged with Union Pacific in 1997, he kept the telecom unit separate and took it public as Qwest. It bought the internet provider SuperNet, the long-distance carrier LCI and Europe's EUnet, then in 2000 completed a $48 billion hostile takeover of the Baby Bell US West, paying largely in its own stock. Its sales culture brought slamming, the practice of switching customers' long-distance service without consent: a $1.5 million FCC fine in July 2000 and a $350,000 Pennsylvania fine in 2001.

The SEC alleged that from 1999 to 2002 Qwest fraudulently recognized $3.8 billion in revenue, largely by booking one-time sales of unused dark fiber as recurring service revenue. The stock fell from over $60 in 2000 to about $1 by 2002, and market value dropped from roughly $91 billion to $1.9 billion. Former CEO Joseph Nacchio was convicted in April 2007 on 19 counts of insider trading and received a 70-month sentence. Yet in 2006, when USA Today reported that AT&T, Verizon and BellSouth had handed calling records to the NSA, Qwest was the only major carrier that had refused without a FISA warrant.

• One telemarketing tactic treated a customer's yes to a mailed brochure as authorization to switch their phone provider.
• Needing cash in 2002, Qwest sold its QwestDex Yellow Pages business to the Carlyle Group and Welsh, Carson, Anderson & Stowe for $7 billion.
• Investors received $695 million in combined settlements, and the Justice Department later returned Nacchio's $44 million forfeiture to more than 112,000 investors.
• Nacchio claimed the NSA first approached Qwest on February 27, 2001, before 9/11, and that the company lost a government contract for refusing.
• CenturyLink agreed to buy Qwest in April 2010 for $22.4 billion including $11.8 billion of debt, and the Qwest name disappeared in 2011.