Qwest, Level 3 Say Contracts Properly Recorded
Qwest Communications International Inc. and Level 3 Communications Inc. said Wednesday that they followed the rules in recording transactions with customers last year, as accounting at telecommunications firms comes under scrutiny.
U.S. regulators are investigating whether Global Crossing Ltd., a fiber-optic network company in Chapter 11 bankruptcy, inflated revenue by using so-called swaps, or transactions in which a carrier sells access to its lines in exchange for using another carrier’s network.
Qwest and Level 3 are among telecommunications companies that use swaps, though each company sought to distinguish its transactions from the types of arrangements drawing investigators’ attention. Both firms issued statements saying they follow generally accepted accounting principles when they record the contracts.
“They have to comfort the market that they’re not doing anything wrong,” said U.S. Bancorp Piper Jaffray analyst Cary Robinson, who rates Level 3 “outperform” and owns the shares. “I don’t see any problems in these two companies’ accounting, but it may take some time to convince investors.”
Level 3 said it properly recorded sales from seven transactions last year in which it swapped network capacity. The agreements represented 2% of last year’s revenue, Level 3 said.
Qwest, a phone company in 14 Western states, said it used generally accepted accounting principles in the way it accounted for a transaction with closely held Internet service provider KMC Telecom Holdings Inc.
Qwest sold networking equipment to KMC Telecom, then agreed to pay KMC Telecom hundreds of millions of dollars for Internet services using the gear. It accounted for its obligations with KMC as routine operating leases, Qwest said in the statement. The transaction was reported Wednesday in the Wall Street Journal.
The company said it disclosed its Internet equipment sales in an Oct. 31 conference call with analysts and investors after releasing third-quarter results. It said it had addressed the KMC transaction with investors at a Dec. 13 meeting. .
Meanwhile, KPNQwest, operator of a data and Internet network in Europe, said Wednesday that it “does not engage, and has never engaged, in cashless transactions.” The firm, 47.5% owned by Qwest, sold capacity to other carriers last year for $382 million, and all the transactions were cash sales.
The Securities and Exchange Commission ordered Qwest to surrender records of transactions with Global Crossing. The companies bought and sold at least $100 million in space on their networks from each other last year.
Global Crossing, based in Hamilton, Bermuda, said its accounting for buying and selling capacity with other carriers was proper and approved by auditors at Andersen.
Shares of Level 3, which is based in Broomfield, Colo., rose 11 cents, or 5%, to $2.33 on Nasdaq. The stock had fallen 22% this month.
Denver-based Qwest slid 62 cents, or 6.7%, to $8.59 on the New York Stock Exchange. The shares had dropped 18%.
