Qwest Communications got a big boost Thursday, being named one of three companies that will compete for chunks of a huge federal telecommunications contract worth as much as $48 billion over its 10-year span.

Now the hard work begins. Qwest and much-larger AT&T and Verizon Communications will compete for business from about 135 federal agencies to provide services, including Internet-based telephone and video access, and data-network security upgrades.

Sprint Nextel wasn't picked, ending the company's 18-year run as a governmentwide contractor.

"This is a big win for Qwest," said Dick Notebaert, Qwest's chief executive.

Denver-based Qwest, the least experienced government contractor of the four bidders, was considered a long shot in the competition. Bank of America analyst David Barden had said in a report this month, "A substantial win could be a game changer for Qwest, but we don't see a high likelihood."

CNBC host Jim Cramer last week recommended Qwest shares because the company had the most to gain from the so-called Networx contract.

Qwest's shares rose to a six-month high of $9.16 when the news was announced before settling to $8.95 at the close of trading.

"It confirms, by a discriminating customer, that we're a national, tier-one telecommunications provider," said Thomas Richards, executive vice president of Qwest's business markets group.

The news comes as the insider trading trial of former Qwest CEO Joseph Nacchio dredges up unpleasant memories of the company's flirtation with bankruptcy during the telecom meltdown. The company's fortunes have improved since Notebaert took over in 2002, and Qwest last year posted a $593 million profit after three consecutive years of losses.

Revenue from the long-term government contract will help offset the erosion of Qwest's long-distance and consumer business, which are under pressure from cable competitors and wireless providers. Qwest also can leverage its government business to gain more corporate clients.

"This contract win removes some of the concerns over Qwest's top-line growth," said Raymond James analyst Frank Louthan in a research note on Thursday.

Industry analysts said they expect the federal government to spend at least $20 billion over the life of the Networx Universal contract, which is capped at $48 billion. Even though the contract starts immediately, none of the companies likely will start booking revenue until 2008.

The three contract winners will split $525 million, but beyond that there's no guaranteed revenue once the companies start battling for business. The GSA notes that the program is "structured to provide strong competition to drive down costs," which might cut into the telco's profit margins for the contracts.

Thursday's announcement "sets up AT&T and Verizon and Qwest as competitors to bid on further contracts," said Donna Jaegers, a telecom analyst at Greenwood Village-based Janco Partners. "It's positive for Qwest, but you can't quantify how positive it's going to be."

Jaegers noted that the Networx bidding might force Qwest to invest more in upgrading its network at a time when the company is focused on trimming expenses and boosting cash flow.

Qwest already provides services to more than 50 federal agencies, including the Department of Energy and Department of Justice, but this marks the company's first governmentwide deal.

Sprint requested a meeting with the U.S. General Services Administration next week and said it will decide afterward whether it will protest its exclusion. Qwest doesn't have its own wireless network and instead resells Sprint's service.

Hundreds of Qwest employees worked on the Networx proposals over the past three years. But Richards expected the festive mood to last for just a few hours. Then it's back to work.

"We've got to immediately begin selling," he said. "We're not going to let the grass grow under our feet."

What it means

• Qwest on Thursday won the right to bid on government contracts worth as much as $48 billion over the next 10 years.

• Qwest will compete with AT&T and Verizon for business from as many as 135 federal agencies.

• Qwest also is up for a second, smaller part of the contract that will be announced in May.

Qwest

NYSE: Q

$8.95

+ 10 cents

davisj@RockyMountainNews.com or 303-954-2514

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