KPNQwest Pushes Into S. Europe

Broadband player Qwest Communications International Inc. will invest up to $305 million to build its seventh European fiber optic network in a joint venture with Amsterdam-based KPNQwest.

The roll-out of 2,500 miles of cable will link seven cities in southern France and Spain, including Marseilles, Barcelona, Madrid and Bordeaux.

Qwest's stock showed a steady rise on the news, moving up from $59 a share on Monday when the announcement was made, to $68 a share on Thursday at press time. Its bonds also were actively trading up on the news.

Following an $800 million high yield offering last May and an $1 billion initial public offering in November, the joint venture is fully capitalized. The companies will not seek additional funding for the project, said Jerry Yohananov, director of KPNQwest's investor relations. In fact, neither Qwest nor KPNQwest will dip into the capital markets in the near-term.

"We're making no major ring announcements for quite a while," said Yohananov. "The next step would be to lay cable between Helsinki and Prague, but to do that, you need to go through Poland, and even though there might be great potential in those markets, given the regulatory environment and economic conditions, I wouldn't expect that anytime soon. Unless there's some unforeseen announcement or the market becomes really prime, we won't be seeking additional funding."

When the network is completed in the fall of 2001, Qwest will have penetrated 46 European business markets.

"It's no secret that we've been building fiber optic networks on the assumption that fiber will be the backbone for most of these [voice and data transmission] services. There's no question of demand for high-quality, high-speed access," said Qwest spokesman Matt Barkett.

Once the network is completed, the cost of build-out should be recovered within two to five years, said Yohananov. That will depend on whether the cables are sold to other companies for resale, or if the network is sold directly to business customers. KPNQwest is willing to make up to two-thirds of its cable available for resale.