REGULATORS CONTINUE TO QUESTION QWEST DEALS – [The New York Times, C1.] Enron and Qwest struck a deal last fall to swap fiber optic network capacity and services at exaggerated prices in an effort to improve each company's financial picture, executives close to the deal said this week. Details of the deal, which was not announced at the time but has been disclosed in recent filings in Enron's bankruptcy case, indicate that the two companies raced to complete the transaction as the third quarter was ending in September. Enron and Qwest valued the transaction at more than $500 million, but analysts said the timing and the valuation would be hard to justify because a glut of fiber optic capacity had sent network prices plummeting. Similar deals by other companies in the last few years have become the focus of inquiries by federal prosecutors, the Securities and Exchange Commission [SEC] and Congress, as investigators try to determine whether the network swaps were legitimate transactions or sham deals meant to lift revenues artificially. So far, in describing its responses to S.E.C. questions, Qwest has said publicly that its swaps are based solely on the needs of its network operations. But executives close to the Qwest-Enron deal, one of the largest recorded, said the swap had other objectives. It helped Qwest, the executives said, soften a deteriorating situation in profit and revenue at the end of last year's third quarter. "Qwest said we will overpay for the assets, and you will overpay me on the contract," one former Enron executive said. "They had a pinch in the third quarter and needed a deal." A financial analyst looking at the deal's details for the first time this week, questioned the need for a swap. "It's totally irrational to buy capacity from Enron," said Patrick Comack, a telecommunications analyst at Guzman. "This is clearly a swap for accounting purposes." [back to top]

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