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Qwest Leadership Questioned

April 4, 2002

DENVER (AP) _ Concerns about Qwest Communications International’s accounting methods and business practices is causing shareholders and analysts to question whether the company needs a change in leadership.

Often, said Howard Rickman, chairman of a group of Qwest retirees in Oregon and Washington, the first thing he’s asked is why the company’s chief executive, Joe Nacchio, still has a job.

``I attend three to four meetings with retirees every month and at every single meeting I get the question ’Why is Nacchio still there,″ he told The Associated Press.

Investors and analysts alike say Nacchio is an intelligent leader who knows the telecom industry. Still, they don’t mind saying that a change could do the company some good.

Denver-based Qwest is being investigated by the Securities and Exchange Commission in regard to its accounting methods, which some analysts have decribed as ``aggressive.″

This week, Qwest said the SEC plans to recommend action against it for failing to include official GAAP results with pro forma results it reported for the fourth quarter 2000.

Analyst Patrick Comack of Guzman & Co. said Qwest may have to restate earnings. He said he also was troubled by a purchase of dark fiber from the now bankrupt Enron Corp. last fall.

``Some investors view this as a dishonest company, and the only way to remedy that is by a change in leadership,″ Comack said.

Attempts to reach members of Qwest’s board of directors Wednesday were unsuccessful. But last fall, the board extended Nacchio’s contract through 2005, Qwest spokesman Chris Hardman said.

Despite Qwest’s stock plunge, investors and analysts alike acknowledge one of Qwest executives’ greatest decisions was acquiring US West, whose operations are generating steady revenues.

``Qwest management is struggling in terms of credibilty with the street,″ said David Bank of RBC Capital Markets. ``They’re going to have to demonstrate a track record of meeting expectations and not coming out with any more surprises on the accounting side.″

Nacchio earned $2.8 million in salary and bonuses in 2000, and $93.4 million from stock options he exercised and sold.

When the board of directors renewed his contract, Nacchio also received 7.25 million new stock options that he can cash in in late 2004 and 2005. He will be awarded $194 million if Qwest shares, which closed down 8 cents at $7.55 Wednesday, reach the $43 level it once traded at.

Drake Johnstone of Davenport & Co. said if Qwest had recognized one-time capacity sales over the life of contracts instead of upfront, revenues would have been lower, and Qwest would have likely violated its bank covenants.

Those covenants were renegotiated this year.

``Given the company’s behavior in the past few years and the manipulation of results, I have a hard time trusting what the company says,″ said Johnstone.

Hardman said both analysts have been critical of Qwest in the past.

``We’re not surprised by their comments, but at the same time, we certainly disagree with them,″ Hardman said.

``We believe we have the right management team to lead the company, and that management team has created one of the most unique blend of assets in the industry that will help our company in the future.″


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