Qwest Faces Criminal Investigation

Qwest Communications International Inc. ( said Tuesday that the Department of Justice (DOJ) informed it that the U.S. Attorney’s office had begun a criminal investigation of Qwest. The U.S. Attorney’s office did not disclose the nature of the investigation.

In a statement released from its Denver headquarters, the company said Qwest will cooperate fully with the government’s investigation.

The probe did not shake industry observers. Telecom industry analyst Jeff Kagan said, “With all the smoke around Qwest in the last few months I guess it’s not a surprise to anyone that they are under investigation.”

Last week, Qwest responded to a Wall Street Journal story that reported the DOJ ( was investigated it by saying that it had no knowledge of such an investigation.

“We have no reason to believe that we are the subject of any investigation by the U. S. Department of Justice,” Drake S. Tempest, Qwest executive vice president and general counsel had said. “It’s outrageous that we would learn about such an investigation through the media. We have disclosed everything asked of us and have cooperated fully with the Securities Exchange Commission and Congress.”

The carrier has been under formal investigation since April by the SEC ( That probe focuses on how Qwest booked revenue in 2000 and 2001 for long-term capacity swaps, or IRUs, with other carriers. Following notice of an informal inquiry by the agency in March, Qwest stated that its accounting policies, practices and procedures for all periods, including 2000 and 2001, comply with all applicable requirements.

In the March statement, the company claimed the revenue attributable to all sales of optical capacity by Qwest in 2000 and 2001, including swaps, were approximately 2.8 percent and 5.1 percent of total reported revenue in those periods and 4.7 percent of total pro forma revenue in 2000.

The carrier also stated then that for 2002 and thereafter, it does not expect sales of IRUs to have a material effect on its financial condition or results of operations as it does not anticipate making any optical capacity asset sales in 2002 due to changes in market demand.

Kagan described Qwest’s new CEO Dick Notebaert and his team as ethical and likely “eager to find anything that is wrong so they can deal with it, fix it, and get on with the job he was hired for, namely turning Qwest around.”

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