Qwest To Leave Denver

Denver based Qwest, a Bell Telephone successor company, is being merged into by a little telephone company you've never heard of (CenturyTel) and will be moving its headquarters to the sleepy town of Monroe, Lousianna in a year or so. The news is not good for downtown Denver where the company is a major tenant and source of headquarters jobs likely to be cut in the deal. Qwest employs about 8,000 people in Colorado, and many hundreds or thousands of those jobs will soon be gone.

In a way, the move makes sense. The cost of doing business is almost certainly lower in Monroe than it is in Denver, and the whole point of the telecommunications industry is that it is irrelevant where you are actually located.

Qwest has not been a paragon of good corporate management. It has a former CEO in federal prison for fraud and more former executives being prosecuted. Its stock price remains down more than 90% from its peak. And, cable companies and cell phone companies, like Comcast and T-Mobile are starting to eat into its core phone services business. Qwest doesn't have a wireless network.

The purchase also largely hastens the inevitable. Qwest has already cut half of its employees in the last decade. It was going to have to cut more in any case as its landline based business shrinks. It narrowly avoided bankruptcy in 2002. It had already announced plans to move 1,200 of the 2,600 jobs provides downtown out of its prime downtown office space in February. This is about 1 in 40 downtown jobs, if I recall correctly.

In theory, investors should be eager to provide funds to any management team that can do a better job for shareholders than the existing team, even if they are little known. The new owner plans to cut $575 million a year in operating costs. In practice, some of the bigger little fish eats big fish transactions, like the acquisition of MCI by WorldCom and Chrysler by Cerebus Management, have ended badly. But, in our economy, anyone who can find someone willing to lend them enough to buy a publicly held company and pay a control premium can buy one, and generally, this is a good thing. Terminating poorly performing companies is almost always politically unpopular, but they can be a major drain on the economy.

The challenge for Denver will be to decide how to fill the hole that Qwest leaves behind in jobs and civic support. This is a tall order at a time when the nation as a whole is in an economic slump, but Denver is still stronger the most.

One place that downtown Denver may look, at a time when central cities have become popular again, while suburbs and office parks are out, is the Denver Tech Center which provides employment to about 35,000 people in the kinds of companies that might see a move to former Qwest office space as a step up.