Qwest-Enron Deal Puts Swaps Back in Spotlight

Like swapaholics at last call, Qwest (Q Quote) and Enron (ENRNQ Quote) bellied up to the bandwidth bar last fall for one last deal before the lights came on and the music stopped.

On Sept. 30, 2001, the last day of the third quarter, Qwest and Enron subsidiary Enron Broadband Services agreed to buy $112 million worth of communications network capacity from each other, according to documents filed this week in federal bankruptcy court in Manhattan. Considering that debt-burdened Qwest already had a huge, new, shiny fiber-optic network in place, the deal struck some investors and analysts as odd.

Industry observers were further intrigued the next month, when Qwest reported a sharp third-quarter earnings and revenue shortfall. The Denver-based telco, which already had come under intense scrutiny for its heavy reliance on nonrecurring network-capacity sales, attributed the shortfall to a sudden drop in demand for these wholesale bandwidth deals. ...